Guide · 6 minute read · Updated 2 Jul 2026

Are premium bonds worth it?

For most people, not quite. Median luck pays roughly 2.5% to 2.9% on large holdings and often nothing at all on small ones, below the advertised prize rate and below a decent easy-access account. They earn their keep once your savings interest is being taxed.

How premium bonds actually pay

Premium Bonds are an NS&I savings product backed by the Treasury. You can hold between £25 and £50,000, and instead of interest, every £1 Bond goes into a monthly prize draw. As of the July 2026 draw the prize fund rate is 3.80% a year (up from 3.30%), with odds of 22,000 to 1 per £1 Bond each month. Both numbers are variable; NS&I moves them with the wider savings market.

In the June 2026 draw, NS&I paid out about 5.95 million prizes worth £376.6 million. Two of those were £1 million jackpots. Around 99% were £25, £50 or £100.

The prize rate is not your return

The 3.80% is the size of the whole prize pot relative to all bonds held, an average across every bondholder in the country. Averages are a poor guide when the distribution is this skewed. The two millionaires each month pull the mean up; almost everyone else sits below it. The honest question is not "what does the average pound earn?" but "what does someone with typical luck actually win?". That is the median, and the median always sits below the prize rate.

The shortfall is worst at small holdings, because prizes come in £25 lumps and you either win one or you do not.

What median luck pays at each holding size

We simulated a year of draws 200,000 times per holding size, using the published June 2026 prize allocation and 23,000-to-1 odds. With median luck:

• £100 held: £0. About 95% of holders win nothing in a whole year.
• £1,000 held: £0. Roughly six in ten win nothing all year.
• £5,000 held: £125, about 2.5%.
• £10,000 held: £250, about 2.5%.
• £25,000 held: £675, about 2.7%.
• £50,000 held: £1,425, about 2.85%.

The simulated mean lands on 3.3%, exactly the prize fund rate of that draw, which is the point: the average is real, you are just unlikely to be average. You are more likely to fall short of the mean than beat it, and the gap is funded by a small number of huge winners. The new 3.80% rate lifts these medians roughly in proportion, but the shape does not change: median luck stays below the headline, and small holdings still mostly win nothing.

For comparison, NS&I's own Direct Saver pays 3.45% gross on every pound, guaranteed each year, and the best easy-access accounts on the open market typically pay more than NS&I. A guaranteed 3.45% beats a median-luck 2.5% to 2.85%, and it certainly beats the £0 a typical £1,000 holder gets. If you are saving towards something specific, our savings goal calculator shows what that difference compounds to over time.

The tax-free angle, and when it genuinely matters

Premium Bond prizes are tax-free, and this is the strongest real argument for them. But tax-free is only valuable if you would otherwise pay tax. In 2026/27 the personal savings allowance lets a basic-rate taxpayer earn £1,000 of ordinary interest tax-free (£500 at higher rate, £0 at additional rate). A basic-rate saver with modest savings pays no tax on interest anyway, so the tax-free wrapper adds nothing.

It changes once the allowance is used up. For a higher-rate taxpayer, a 3.80% tax-free prize rate is equivalent to about 6.33% gross from a taxable account, and about 6.91% for an additional-rate taxpayer. If you have also filled your £20,000 annual ISA allowance, Premium Bonds become one of the few remaining tax-free homes for cash. Our ISA calculator shows how much tax you are actually paying on savings interest, which is the number that decides whether this angle applies to you.

So the genuine sweet spot is narrow: a higher-rate or additional-rate taxpayer, savings allowance exhausted, ISA filled, holding close to the £50,000 maximum. At that size the law of large numbers also works in your favour; median luck at £50,000 runs much closer to the prize rate than at £1,000.

Can you lose money?

Not in cash terms. Your capital is government-backed, never falls in nominal value, and can be withdrawn at any time. In real terms, yes: a year of no prizes while prices rise is a real-terms loss, and at small holdings that is the most likely outcome. There is also nothing wrong with enjoying the draw, the chance of a life-changing prize is the product's actual appeal. Just price it honestly: you are giving up roughly half to one percentage point of expected-with-typical-luck return, or all of it at small holdings, for a lottery ticket with your stake returned.

So are they worth it?

Worth it if you pay tax on your savings interest, have filled your ISA, can hold a large balance, and value absolute capital safety with a small chance of a windfall. Not worth it as a home for a small emergency fund or a short-term goal; median luck at £1,000 is zero, and a boring account paying interest on every pound will beat it. Run your own numbers in the ISA calculator and the savings goal calculator before deciding.

Common questions

What are the chances of winning £1 million on Premium Bonds?

Vanishingly small. In the June 2026 draw there were 2 £1 million prizes among about 5.95 million prizes, and each £1 Bond had a 23,000 to 1 chance of winning anything. Combined, that is roughly a 1 in 68 billion chance per £1 Bond per month of hitting the jackpot.

Are Premium Bonds better than a savings account?

Usually not on return alone. The prize fund rate is 3.80% from the July 2026 draw, but median luck pays around 2.5% to 2.9% on large holdings and often nothing on small ones, while easy-access accounts pay guaranteed interest on every pound. Premium Bonds win mainly for higher-rate taxpayers who have used their personal savings allowance and ISA allowance, because prizes are tax-free.

Are Premium Bond prizes tax-free?

Yes, all prizes from £25 to £1 million are free of UK income tax and capital gains tax. That only adds value if you would otherwise pay tax on interest: in 2026/27 basic-rate taxpayers get £1,000 of ordinary interest tax-free anyway, higher-rate £500, additional-rate £0.

Can you lose money on Premium Bonds?

Not in cash terms: your capital is backed by the Treasury, never falls in nominal value, and can be withdrawn at any time. You can lose money in real terms, because a year with no prizes while inflation runs is a real-terms loss, and at small holdings winning nothing is the most likely outcome.

What is the maximum you can put in Premium Bonds?

£50,000 per person, with a minimum purchase of £25. Larger holdings get more draw entries, so returns at £50,000 cluster much closer to the prize fund rate than returns on small holdings do.

Guidance and education, not regulated financial advice.