Premium Bonds vs a savings account

Premium Bonds do not pay interest. Each £1 you hold buys an entry into a monthly prize draw, with prizes from £25 to £1 million, and the prize fund rate that funds those prizes is 4.35% a year, variable from the September prize draw¹. A savings account works the other way round: it pays a set rate of interest, so you know what you are getting, but the rate is usually modest and can be cut.

The choice comes down to what you want from the money. Premium Bonds offer a chance of a large tax-free prize and easy access to your capital, but no guaranteed return, and the odds of any single £1 Bond winning in a given month are 21,000 to 1¹. A savings account offers a predictable return, but the interest is taxable once it exceeds your allowance and the rate may not beat inflation.

This page sets out how each one behaves, what the prize fund rate does and does not mean, and the practical differences that matter when you are deciding where to put a lump sum.

Premium Bonds pay prizes, not interest

Premium Bonds are a savings product where the return comes from a prize draw rather than an interest rate. Unlike typical savings accounts, they do not pay interest: instead, each £1 saved gets you an entry into a monthly draw³. NS&I states plainly that no interest is earned, and that the rate funds a monthly prize draw for tax-free prizes¹.

That structure changes the nature of the return. Winning is not guaranteed, and some savers receive no prizes at all; the outcome depends on luck rather than a guaranteed interest rate⁴. Lloyds Bank makes the same point in its mortgage guidance, warning that prize money is not guaranteed⁵. The Birmingham Mail reported in September 2026 that Premium Bonds do not pay interest directly⁶.

What you do get is certainty about your capital. The money you put in is returned when you cash the Bonds in, and NS&I is backed by HM Treasury, the government's economic and finance ministry⁷. Prizes are exempt from income tax and capital gains tax², and NS&I confirms that a winner does not pay tax on a prize⁸.

The contrast with an ordinary account is sharp. A savings account pays interest, usually annually, though some accounts pay quarterly or monthly⁹. That interest is predictable in amount, subject to the rate staying the same, and it is taxable once it exceeds your personal savings allowance. Premium Bonds swap that predictability for a chance at a much larger sum.

How the monthly prize draw works

Every £1 Bond you hold has its own Bond number, and that number is entered into a monthly draw³. Prizes range from £25 to £1 million, and they are tax-free¹⁰. Two £1 million prizes are normally awarded each month, alongside a very large number of smaller prizes: in the February 2025 draw there were two £1 million prizes and 1,807,915 prizes of £25¹¹.

There is a waiting period. You need to hold your Bonds for a whole calendar month before they are eligible for the prize draw¹. Premium Bonds must be held for a full calendar month before entering a draw¹¹. Once you are in, you stay in: each month your Bond numbers go into the draw again.

NS&I splits prizes into three value bands, higher, medium and lower, and allocates a percentage share of the monthly prize fund to each¹². That is how the fund is distributed across the prize range rather than being spread evenly.

If you win, NS&I contacts everyone who wins a Premium Bonds prize¹³. You can choose to have prizes paid straight into your bank account or reinvested into more Premium Bonds¹², and if you pick either option NS&I will let you know by text or email¹². Prizes paid to a bank account must go to a personal account in your name, held in the UK, able to receive electronic payments¹⁴. The prize checker is updated on the day after the first working day of each month, and shows prizes won this month, in the previous six draws, and any older unclaimed prizes¹².

Prize fund rate: 4.35% from the September draw

The prize fund rate is 4.35% a year, variable from the September prize draw¹. It was raised from 3.80% for the September 2026 draw, the second increase in 2026, and the odds shortened to 21,000 to 1 at the same time⁶. Before that, the rate had been 3.80%⁶, and it was previously increased in July 2026⁶.

The rate has moved around a good deal. It stood at 4.65% for the September 2023 draw¹¹, and fell from 4% to 3.8% from the April 2025 draw¹¹. For accounts switched to Premium Bonds, a rate of 3.30% applied until the June 2026 prize draw, with 4.35% from the July 2026 prize draw¹.

The odds have moved too. NS&I lists odds of 23,000 to 1 for every £1 Bond until the June 2026 prize draw, and 21,000 to 1 from the July 2026 prize draw¹. The Which? figure of 22,000 to 1 for each bond you hold dates from February 2025¹¹, and reflects the position at that time.

What the rate actually is matters for understanding the product. The legislation behind Premium Bonds defines the prize fund interest rate as the rate of interest applicable to each bond unit eligible for entry into the prize draw for a given month, which, together with the number of such units, determines the prize fund for that month⁵. In other words, it is a calculation applied to the whole pool, not a rate credited to your individual holding.

The prize fund rate can change without notice

The Treasury may change the prize fund interest rate at any time without notice, overriding any notice requirement in the terms and conditions⁵. The same applies to the scale of prizes: the Treasury may change the scale of prizes for a draw without notice⁵. Those powers came into force on 30 September 2004⁵.

NS&I confirms the arrangement in its own documents, stating that its interest rates and the Premium Bonds prize fund rate are set by HM Treasury and may change from time to time¹⁵. The same wording appears in the Guaranteed Growth Bonds key features¹⁶.

For a saver, this means the headline rate is not a promise. It can be cut or raised between draws, and the odds of winning can change with it. The rate you see today is the rate applying to the current draw, not a rate locked in for a year.

Guaranteed interest or a chance of a prize: how each one behaves

A savings account pays interest at a rate set out in its terms. Fixed-rate savings bonds usually pay interest annually, though some accounts pay quarterly or monthly⁹. They typically offer a higher interest rate than instant access savings accounts, and the longer you lock your money in, the higher the rate is likely to be⁹. The trade-off is access: the money is not generally accessible during the period, and closing the account early can result in loss of interest or other penalties¹⁷.

Premium Bonds behave differently in three ways. First, there is no interest: the return is a chance of a prize, and winning is not guaranteed⁴. Second, the return is uneven. Because the odds of any single Bond winning are 21,000 to 1¹, a holder with a modest amount may go months or years without a prize, while a holder with the maximum £50,000 has far more entries and a correspondingly better chance of regular small wins. Third, the prizes are tax-free, which a savings account's interest is not once it exceeds your allowance.

There is also a structural difference in how the money is held. Premium Bonds are easy access, with no fixed term. A fixed-rate bond locks the money away for a set period, usually between 1 and 5 years¹⁸, and a bond is defined as a savings account that tends to come with a higher fixed rate of interest than an access account, usually requiring a minimum amount to open and with restrictions on access¹⁹. Bonds are savings accounts for a fixed period, usually with a fixed rate, so you have a better insight into how much your money will earn²⁰.

Neither route is risk-free in real terms. Money in a fixed-rate savings bond will not hold its value in real terms if the interest you are getting is less than the rate of inflation over the investment period⁹. A portfolio weighted towards bonds and cash is lower risk, but leaves your money vulnerable to being eroded by inflation²¹.

Choosing between Premium Bonds and a savings account

The decision turns on what you need the money to do. If you need a predictable return, a savings account delivers one: interest is paid at a known rate, and on a fixed-rate bond that rate holds for the term⁹. If you want a chance at a large tax-free sum and can accept that you may win nothing, Premium Bonds offer that, with the security of your capital and easy access¹.

There are practical points on both sides. Premium Bonds have a £50,000 holding limit, and any Bond numbers over that limit are not eligible to win prizes; if a number beyond the limit is drawn and a prize paid in error, NS&I has the right to reclaim it¹. If you withdraw enough that your holding falls below £50,000, NS&I automatically starts reinvesting your prizes into more Bonds again¹⁴. You can change your prize options at any time¹⁴.

On the savings side, the type of account matters as much as the rate. A regular savings account is not designed for a lump sum: if you have a lump sum to save, you may get better returns from a different type of savings account²². Fixed-rate bonds pay more than instant access but restrict withdrawals⁹. Notice accounts and easy access accounts sit between the two.

Tax is a real difference. Premium Bonds prizes are exempt from income tax and capital gains tax². Interest on a savings account counts towards your personal savings allowance, and half a million savers face a tax bill over £2,000²³. For a higher-rate taxpayer with a large lump sum, that gap can matter as much as the headline rate.

If you are saving for a child, Premium Bonds can be bought for someone else's child, but only the parent or guardian can view the child's account, not the gift giver²⁴. The Bonds remain in the individual's name and continue to be entered into prize draws⁴. Junior ISAs are the other common route for children's savings²⁵.

If you are weighing Premium Bonds against other NS&I products, Income Bonds are an easy access savings account that pays interest monthly, direct to your bank²⁶, and Direct Saver is another option²⁷. NS&I accounts can be managed online, by phone or by post, and you can check your investments, pay money in and take it out, change your personal details, and choose to have Premium Bonds prizes paid straight to your bank account²⁸. If you have Premium Bonds, Children's Bonds or an Investment Account, you can manage them by post without using the online service²⁹.

Where you cannot find your holder's number, you can log in to the online service and check your Premium Bonds account page, or call for a replacement Bond record³⁰. There is no time limit to claim an unclaimed prize, and NS&I will hold on to it until you get in touch¹³. Unclaimed prizes cannot be sent directly to your bank account¹³.

Where to get help

If you are unsure which route suits your circumstances, free and impartial guidance is available. MoneyHelper, the government-backed service, explains how cash savings bonds work and what to expect from them⁹. The Consumer Council also sets out how savings accounts work for consumers¹⁷.

For Premium Bonds specifically, NS&I's own product pages and help articles cover prize options, holder numbers and unclaimed prizes¹. If you have a complaint about NS&I, its complaints process is published on its site³¹.

If you are dealing with debt or a tight budget, free debt advice is available, and independent guidance suggests thinking about opening a savings account or joining a credit union as part of a household budget³². Credit unions offer a range of savings accounts³³, and some pay a dividend or bonus rather than interest, which depends on how the bank performs and is not guaranteed³⁴.