Premium Bonds vs a savings account: which fits?
Important: This guide provides general information, not personalised financial advice. Financial products, rates and eligibility rules can change, so check the provider’s current terms before applying.
FSCS protects eligible deposits up to £120,000 per person, per authorised institution.
Quick answer
Premium Bonds don’t pay interest. Instead, each £1 Bond is entered into monthly prize draws from £25 to £1 million.
NS&I’s annual prize fund rate was 4.35% variable and the odds 21,000 to 1 per £1 Bond each month, as of 4 October 2026. Prizes are tax-free and NS&I is backed by HM Treasury.
A savings account pays a known rate. With average luck, many holders win less than the prize fund rate, and some win nothing.
Side by side
| Feature | Premium Bonds | Savings account |
|---|---|---|
| Return | Prizes; 4.35% prize fund rate (variable) | Interest at a stated rate |
| Tax | Prizes tax-free | Interest taxable above your allowance |
| Protection | 100% backed by HM Treasury | FSCS up to £120,000 per bank |
| Limits | £25 minimum, £50,000 maximum | Varies |
| Access | Cash in with no notice or penalty | Depends on account |
From NS&I and GOV.UK as of 4 October 2026. General information, not advice.
Who it’s for
- Premium Bonds: higher-rate taxpayers who’ve used their Personal Savings Allowance, and people who value Treasury backing above £120,000
- Savings account: people who want a predictable return
Who should skip it
These are general points to weigh up, not advice. You may want to look elsewhere if:
- You need a guaranteed income from your savings
Full explanation
If you pay tax on savings interest, compare Premium Bonds’ tax-free prizes with an after-tax savings rate. A basic-rate taxpayer can earn £1,000 of interest tax-free; a higher-rate taxpayer £500.
The catch
The prize fund rate is an average. Your actual return depends on luck, and inflation can erode the value of Bonds that don’t win.
See also: Inflation Explained: What Rising Prices Mean for Your Money
FAQs
What is the Premium Bonds prize fund rate?
4.35% variable, as of 4 October 2026 (source: NS&I).
What are the odds of winning?
21,000 to 1 per £1 Bond each month (variable).
Are Premium Bond prizes taxed?
No, prizes are free of UK Income Tax and Capital Gains Tax.
How much can I hold?
£25 to £50,000.
Can I cash in any time?
Yes, with no notice or penalty; it can take 3–5 working days.
Get our weekly email
The Friday Finance Lowdown — five minutes of the money stuff worth knowing.
Free to join. See our privacy policy for how we handle your email address.