How Premium Bonds work

Premium Bonds are the UK's most popular savings product, sold by National Savings and Investments (NS&I), and they work differently from every ordinary savings account. As NS&I puts it, "Premium Bonds don't pay interest. Instead, each £1 saved gets you an entry into a monthly prize draw"¹. Each £1 Bond you buy has its own number, and it is that number which goes into the draw, with prizes ranging from £25 to £1 million².

You can invest from £25 up to the maximum holding of £50,000². The current annual prize fund rate is 4.35%, variable, from the September 2026 draw, and the odds of any single £1 Bond winning a prize are 21,000 to 1³. The money is not held with a bank: NS&I is the nation's savings bank, backed by the UK government⁴, so your savings are protected in full by the Treasury rather than through the FSCS.

Premium Bonds pay prizes, not interest

The defining feature of Premium Bonds is that there is no interest rate applied to your balance. Nothing compounds, nothing is credited monthly or annually, and the balance shown when you log in only changes when you pay money in, take money out, or win a prize. Instead of interest, NS&I pools an amount of money each month, the prize fund, and distributes it among the winning Bond numbers².

That makes the return unpredictable in a way no savings account is. A holder with £10,000 of Bonds might win several prizes in a year, or none at all. The prize fund rate, currently 4.35%, is a measure of the total prize money paid out relative to all eligible Bonds, not a rate any individual is promised³. Which? makes the point bluntly: "the current odds of winning any prize are just 21,000 to one, meaning many people will get nothing at all"⁶.

The trade-off is certainty against tax treatment. Interest from an ordinary savings account is taxable above your allowances, and Which? has reported on large numbers of savers facing tax bills on their interest, while noting that with Premium Bonds "you can hold up to £50,000 tax-free, but they don't pay interest"⁶. Prizes themselves are entirely free of tax⁵. MoneyHelper, the government-backed money guidance service, notes the opposite trade-off elsewhere in the savings market: with fixed-rate savings bonds "you usually get a higher interest rate than from instant access savings accounts", in return for tying your money up⁷.

If you are weighing the two approaches side by side, the comparison page on Premium Bonds vs a savings account works through the numbers, and how a savings account works explains what an interest-paying account does instead.

How the monthly prize draw works

Every eligible £1 Bond number goes into a draw held each month. NS&I explains that "each £1 Bond you buy has its own Bond number, and it's this number that is entered into a monthly draw"¹. Which?'s guide to saving for children describes the shape of it: "every month, two lucky winners will get the jackpot. Many more will win prizes from £25 upwards"⁸.

There is a waiting period before Bonds count. NS&I states that "you'll need to hold your Bonds for a whole month before they're eligible for the prize draw"³. So a purchase made early in one month will typically enter the draw the following month, and the same rule was reported when NS&I last cut the rate: "premium bonds must be held for a full calendar month before entering a draw"⁹.

The prize money is not spread evenly. NS&I splits prizes into three value bands: "higher, medium and lower", and allocates a percentage share of the monthly prize fund to each band¹⁰. The result is that the overwhelming majority of prizes are small. In the October 2025 draw, there were 6,049,850 prizes in total: 2 prizes of £1 million, 76 of £100,000, 304 of £25,000, 15,971 of £1,000, 1,698,537 of £100, 1,698,537 of £50, and 2,586,082 of £25¹¹. Earlier in 2025, the total number of prizes was around 5.86 million in the February draw, rising to about 5.9 million from the April draw⁹.

The process from purchase to prize, including the month-long wait before Bonds become eligible³.

Prize fund rate and odds: 4.35% and 21,000 to 1

Two numbers describe the deal: the prize fund rate and the odds. The prize fund rate is the annual rate used to calculate the total prize money each month, and it is variable, meaning NS&I can change it. It currently stands at 4.35% from the September 2026 draw³. The odds are the chance of any one £1 Bond winning any prize in a month, currently 21,000 to 1 from the July 2026 draw³.

Both numbers have moved repeatedly, and the recent history shows how quickly:

The December 2024 figure of 4.15% and the April 2025 cut from 4% to 3.8%, with odds then at 22,000 to 1, come from Which?'s reporting on NS&I's rate changes⁹. The 3.30% rate with odds of 23,000 to 1 until the June 2026 draw, improving to 21,000 to 1 from July 2026, and then the rise to 4.35% from September 2026, are NS&I's own current figures³.

What the prize fund rate is not is a personal return. NS&I describes it as the annual rate used to fund prizes, and Which? notes it "reflects the average annual payout"⁹. A holder who wins nothing receives nothing, regardless of the headline rate. That is the core difference from a savings account, where the stated AER is what every holder actually receives.

The rate has fallen and risen again over two years, and the odds have twice been re-set³.

How much you can hold: £25 to £50,000

The entry point is low and the ceiling is fixed. You buy Premium Bonds for £1 each, with a minimum purchase of £25, and the maximum holding is £50,000 per person¹. NS&I states the same range on its product pages: "Invest from £25 to £50,000"³. Which? has also noted that "you can only hold up to £50,000 in Premium Bonds" when explaining how the bonds fit alongside ISA allowances¹².

The limit applies to the total holding, including Bonds bought with reinvested prizes. The prize options form warns that reinvestment instructions cannot be carried out if they would take the holding past "the maximum holding limit of £50,000"¹³. NS&I is explicit about what happens if a holding somehow goes over: "Any Premium Bond numbers that go over the £50,000 limit are not eligible to win prizes. If a number beyond the limit is drawn, and a prize paid in error, we have the right to reclaim it"³.

Access is straightforward. NS&I states that "you can cash in all or part of your Bonds at any time"¹⁴, with no notice period and no loss of prizes already won. That makes Premium Bonds more accessible than a fixed-rate bond, where money is normally tied up for the term, though less predictable than an easy access account, which pays a known rate on the whole balance. The page on how much you can hold in Premium Bonds covers the edge cases, including purchases that would breach the limit.

Buying Premium Bonds for a child

Children can hold Premium Bonds in their own name from birth. NS&I states that "any adult can buy Premium Bonds for a child under 16"¹⁵, and children under 16 are eligible to hold Premium Bonds alongside NS&I's Junior ISA and Investment Account¹⁶. The minimum and maximum are the same as for adults: £25 to £50,000¹⁵.

Whoever buys the Bonds, control sits with a nominated adult. NS&I explains that anyone over 16 can buy for a child "but will need to nominate someone to look after the child's Bonds until they turn 16, who must be a parent or guardian"¹⁶. A child can have more than one responsible person linked to the account, but the child can only have up to £50,000 of Premium Bonds in total¹⁶. NS&I's product page confirms the same rule: "the child must not hold more than £50,000 of Premium Bonds in total"³.

Buying as a gift for someone else's child adds steps. The child's parent or guardian must give permission for their information to be shared with NS&I, and must be willing to look after the investment until the child turns 16¹. If the parent or guardian is not already an NS&I customer, they will need to provide proof of their own and their child's identity by post, and the gift reaches the child only after all identity checks are completed, which can take up to four weeks from when proof of identity is received¹. The gift giver gets no access: "you won't be able to view the child's Premium Bonds account, only the parent/guardian will have access to it"¹.

Control passes at 16. Until the child's 16th birthday, the parent or guardian named on the application looks after the Bonds, regardless of who bought them, and when the child turns 16 they manage the Bonds themselves³. Prize instructions made by a parent or guardian on a child's behalf "only remain in place until the child turns 16"¹³, so the new 16-year-old needs to give NS&I their own instructions. For a wider view of the options, including accounts that pay interest, see children's savings accounts and the dedicated page on buying Premium Bonds for a child.

How prizes are paid and reinvested

Winners do not receive cheques by default any more. NS&I's main options are: "you can choose to have your prizes paid directly to your bank account (or NS&I Direct Saver) or reinvested into more Premium Bonds", and with either option "we'll let you know by text or email if you win"¹⁰. The prize options form states the account "must be a personal (if applicable) account in your name, held in the UK, which is able to receive payments by electronic transfer"¹³. For children under 16, the account needs to be in the name of the responsible parent or guardian who manages the child's Premium Bonds¹³.

Reinvestment has a timing advantage: "new Bonds bought by reinvesting are eligible to win prizes from the very next draw"¹³, skipping the usual month-long wait. But an instruction received close to the end of the month, around the time of the prize draw, may not be fulfilled until the following month's draw¹³. Reinvestment also cannot take a holding over the £50,000 limit¹³.

You can change your prize options at any time¹³. NS&I says around 9 in 10 prizes are now paid to a bank account or reinvested rather than sent by cheque¹⁷. Registered customers manage everything online: the online and phone service lets you check your investments, pay money in and take it out, change personal details, and choose to have prizes paid straight to your bank account¹⁸. If you are already registered, you must log in to change how you receive prizes; unregistered customers can change prize options without registering¹⁹.

Two special cases are worth knowing. First, large prizes work differently: "if you win £25,000, £50,000 or £100,000, we'll send you a claim form, which you must complete and send back to us before we can pay your prize"³. Second, prize cheques, where they are still issued, "expire after 3 months" for security¹⁰.

Tax and what happens when a holder dies

The tax treatment is one of the product's strongest selling points. NS&I is plain: "if you're a lucky winner, you won't have to pay a penny in tax on your prize"⁵. Premium Bonds are exempt from income tax and capital gains tax¹¹, which means prizes never use any of your allowances and never need to be declared to HMRC. This contrasts with savings interest, which is taxable above your personal savings allowance, a point that matters more when rates are high; see how tax on savings interest works.

Death changes the picture. Premium Bonds "do form part of your estate when you die and are therefore liable for inheritance tax (IHT)"¹¹. They also cannot simply be handed on: "premium bonds can't be transferred to beneficiaries after the holder has died. Instead, they have to be cashed by the executor of the will"¹¹. Which?'s guide to passing on NS&I savings confirms the two routes: the Bonds "must be cashed out by the executor, or left for another 12 months on death of the holder"²⁰.

That 12-month window matters because "premium bonds may still be entered into prize draws for up to 12 months after the holder has died and are still eligible" to win¹¹. The executor's first job is to inform NS&I, after which the account is frozen and no more Bonds can be bought¹¹. Prizes won after the holder has died are themselves entirely tax-free¹¹, though winnings received while the holder was alive form part of the estate and could face an IHT charge¹¹.

Government backing: your money is protected in full

Premium Bonds are not a bank deposit, and the protection works differently. NS&I is "the nation's savings bank, backed by the UK government"⁴, and its key documents state that "NS&I is backed by HM Treasury, the government's economic and finance ministry"²¹. The same backing applies across NS&I's range, including Direct Saver, where the brochure repeats that NS&I is backed by HM Treasury²², and British Savings Bonds, which NS&I describes as "100% secure, backed by HM Treasury"²³. Which? makes the practical point for Premium Bond holders directly: "your money is 100% backed by the Treasury"⁹.

The contrast with banks matters at the £50,000 level. NS&I is backed by the Treasury, and is therefore not covered by the FSCS: 100% of all NS&I savings are fully protected¹¹. A saver with £50,000 in Premium Bonds has the full amount protected by the Treasury, with no limit to think about and no need to check which brands share a licence. The page on NS&I accounts and Treasury backing sets out how this works across the whole NS&I range.

This is also why the £50,000 holding limit and the protection limit are the same number: the cap on how much you can hold is a product rule, not a protection threshold. There is no scenario in which part of a Premium Bonds holding sits outside government backing.

Unclaimed prizes and finding old Bonds

The scale of forgotten prize money is large. According to NS&I data reported by Which?, "there are 2,817,080 unclaimed prizes worth £123,537,625 waiting to be claimed by bond holders"²⁴. A prize is recorded as unclaimed if you have not come forward to claim it after 18 months²⁴. Earlier reporting put unclaimed NS&I Premium Bonds prizes at £60 million, affecting around 1.5 million people²⁵.

Prizes go unclaimed mainly because NS&I has lost touch with the holder, usually after a house move. NS&I says it contacts everyone when they win²⁶, but a letter or cheque sent to an old address will not arrive. Once you are back in touch, the position is generous: "there's no time limit to make your claim" and "we'll hold on to it until you get in touch with us"²⁶. One restriction applies: "unfortunately, we can't send unclaimed prizes directly to your bank account", so a claim for older prizes is made by post, with your holder's number, current name and address, previous names and addresses, and signature²⁶.

Checking is quick. NS&I's prize checker shows any prizes won this month, anything won in the previous six draws, and any older unclaimed prizes, and it is updated on the day after the first working day of each month¹⁰. There is also a prize checker skill for Amazon Alexa¹⁰. To use the checker you need your holder's number, which has 9 or 10 digits, or 8 digits followed by a letter; you can find it by logging in to NS&I's online service and checking your Premium Bonds account page, or by writing in for a replacement Bond record²⁷. If you come across old paper Bonds, you can write to NS&I to get them added to your online account²⁷.

If you have lost touch with NS&I entirely, the steps are on how to trace lost NS&I savings and Premium Bonds, the specifics of claiming are on how to claim unclaimed Premium Bonds prizes, and finding your number is covered in finding your NS&I holder's number.