Premium Bonds are a savings product from National Savings and Investments, better known as NS&I. Instead of paying interest, NS&I enters every bond into a monthly prize draw. The prizes range from £25 to £1 million, and two jackpots of £1 million are drawn every month. The first draw was in June 1957, and ERNIE (Electronic Random Number Indicator Equipment) has now drawn 586 £1 million prizes.
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Over 22 million people hold Premium Bonds. The minimum purchase is £25 and the maximum holding is £50,000 per person. A couple can hold £100,000 between them. Each £1 you put in buys one bond with its own number, and every bond has an equal chance in every draw.
Anyone aged 16 or over can buy bonds directly. A parent, guardian or grandparent can buy for a child under 16, with a nominated adult managing them until the child turns 16.
How the prize draw works
Every month, ERNIE picks winners at random. In the September 2026 draw there were 6,529,868 prizes worth a total of £497,086,175. The odds of any single £1 bond winning a prize in any monthly draw are 21,000 to 1. Those odds are variable and can change. For comparison, National Lottery Lotto jackpot odds are about 1 in 45 million per line.
NS&I publishes a prize fund rate, which for the September 2026 draw was 4.35% a year. This rate is variable and changes regularly, so check nsandi.com for the current figure. The prize fund rate is an average across all bondholders. It is not a rate anyone is actually paid. Most holders win less than the rate implies, because a small number of large prizes pull the average up. Someone holding £1,000 in bonds might win nothing for years, while someone else wins several times. That is the nature of a lottery.
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This is where Premium Bonds stand out. All prizes are completely free of UK Income Tax and Capital Gains Tax. They are never declared on a Self Assessment return, regardless of how much you win or how high your income is. Prizes do not count towards your Personal Savings Allowance either. If you want to know how the Personal Savings Allowance works, GOV.UK has the details.
For someone who has already used up their Personal Savings Allowance, this can make a real difference. Interest from ordinary savings accounts is taxable once the allowance is gone, so higher earners and those with substantial savings sometimes find Premium Bonds a useful place to hold cash. That said, the tax benefit is just one factor. Whether Premium Bonds make sense depends on your overall financial situation and what you need your savings to do.
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Safety of your money
NS&I is backed by HM Treasury. That means your entire holding is government backed, not protected under the Financial Services Compensation Scheme. The FSCS limit is £85,000 per person per institution. With NS&I, the full £50,000 maximum is covered by the Treasury guarantee, and so is a joint holding of £100,000 between a couple.
You can cash in your bonds at face value whenever you like, so you can always retrieve your initial amount. But your money earns nothing unless your bonds win a prize. If you hold Premium Bonds for years and win little or nothing, inflation will quietly eat into the real value of your money. Government backing means your capital is not at risk, but it does not mean you will get a return. That is the trade off: complete safety of your original stake, but no guaranteed growth.
Who they suit
Premium Bonds work well for people who want somewhere safe to park cash and like the monthly chance of a win without risking their stake. They are worth a look if you have used up your Personal Savings Allowance and face tax on any further interest, or if you are holding more than the FSCS covers at a single bank.
They also suit cautious savers who simply do not want to deal with tax on their returns. If the thought of tracking taxable interest feels like a chore, Premium Bonds remove that concern entirely.
They are less suitable if you need a predictable income or want your savings to grow reliably over time. A fixed rate savings account or a notice account will pay a set amount of interest. Premium Bonds might pay more, might pay less, might pay nothing. Over a long period, most holders win less than the headline prize fund rate would suggest. And because there is no guaranteed return, inflation can erode your spending power even while your capital stays intact.
Prizes never expire. If you think you might have unclaimed prizes, visit nsandi.com and use their prize checker tool to find out.
Premium Bonds are not an investment in the usual sense. They are a way to hold cash with a chance of winning prizes and no tax to pay on those wins. Whether that beats a savings account depends on your tax position and how much you mind an unpredictable return.
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