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Premium Bonds

Premium Bonds are a unique savings product issued by National Savings & Investments (NS&I), a UK government-backed savings organisation. Instead of earning interest, each £1 bond is entered into a monthly prize draw with tax-free prizes ranging from £25 to £1 million. As of the 2025/26 tax year, the maximum holding is £50,000 per individual. Premium Bonds are one of the most popular savings vehicles in the UK, with over 25 million people holding them. They appeal particularly to higher and additional-rate taxpayers because the prizes are completely free of Income Tax and Capital Gains Tax, unlike interest from a standard savings account.

Prize Fund Rate

The prize fund rate determines the average annual return across all bonds. For the April 2025 draw, the prize fund rate stands at 4.00%. This does not mean you will achieve a 4% return — it means the total value of prizes paid out over a year is 4% of the total value of all bonds in the draw. Because prizes are random, many bondholders receive less than the prize fund rate (sometimes nothing), while a few receive much more. The odds of each £1 bond winning any prize in a single monthly draw are approximately 21,000 to 1, which translates to roughly a 1 in 175 chance per bond per year of winning at least one prize. The effective "median" return is lower than the headline rate because a small number of large prizes account for a significant portion of the prize fund.

Tax-Free Prizes

All Premium Bond prizes are tax-free. They are not subject to Income Tax or Capital Gains Tax, and you do not need to report them on your Self Assessment tax return. This is the single biggest advantage of Premium Bonds over savings accounts. For a higher-rate taxpayer, a savings account paying 4% gross is worth only 2.4% after tax (40% Income Tax). A Premium Bond prize fund rate of 4% gives the equivalent of a pre-tax return of 6.67% for a higher-rate taxpayer. For additional-rate (45%) taxpayers, the equivalent pre-tax return is 7.27%. Even basic-rate taxpayers benefit — 4% tax-free is equivalent to 5% gross from a savings account (20% tax). The tax-free status makes Premium Bonds particularly attractive for those who have already used their ISA allowance and Personal Savings Allowance.

How to Buy and Manage

You can buy Premium Bonds online through the NS&I website, by phone, or by post. You need to be aged 16 or over (bonds can be bought for children under 16 by a parent or guardian). You can invest as little as £25 (minimum purchase is £25, and you can buy in multiples of £1 thereafter). Bonds must be held for a full calendar month before they are entered into the first prize draw — bonds purchased in April are entered into the June draw. You manage your bonds through your NS&I online account, where you can check your prizes, reinvest winnings, and increase or withdraw your holdings. NS&I also offers a prize checker app and an Amazon Alexa skill for checking prizes. Prizes under £5,000 are automatically paid into your bank account or reinvested into more bonds. Larger prizes are paid by cheque or bank transfer.

Odds of Winning

The odds of winning are fixed by NS&I and change periodically based on the prize fund rate. At the current odds of 21,000 to 1 per bond per draw, a holder with £10,000 in bonds has approximately a 38% chance of winning at least one prize each month, or roughly a 99.98% chance of winning something over a year. However, this is an average — in practice, around 40% of bondholders with £10,000 will win more than the prize fund rate would suggest, 20% will win less, and 40% will win roughly the expected amount. The probability of winning a £1 million prize is 1 in 62 billion per £1 bond per draw. If you hold the maximum £50,000, your odds of winning a million-pound prize in any given year are approximately 1 in 1.35 million.

Withdrawing Your Money

Premium Bonds are fully backed by HM Treasury, so your capital is 100% secure. You can withdraw your money at any time — there is no notice period and no penalty. Withdrawals are typically processed within 3–5 working days for online requests and up to 8 working days for postal requests. The full £50,000 maximum holding means Premium Bonds can serve as a high-limit rainy day fund, though the variable and uncertain return means they are not a perfect substitute for an easy-access savings account. If you need a guaranteed return or predictable income, a Cash ISA or fixed-rate bond might be more suitable.

Premium Bonds for Children

Parents, grandparents, and guardians can buy Premium Bonds for children under 16. The child's bond holding is managed by a registered contact (usually a parent) until the child turns 16, at which point they take over management. The £50,000 maximum applies per child — so a family of two adults and two children could hold up to £200,000 in Premium Bonds collectively. Children's bonds are entered into the same monthly draw with the same odds and prizes. This makes Premium Bonds a popular gift for children, particularly from grandparents who want to provide a tax-free savings vehicle that also offers the excitement of the monthly prize draw.