Premium Bonds are the nation's favourite flutter dressed up as saving. Instead of paying interest, NS&I puts every £1 bond into a monthly prize draw. Your capital is safe and backed by the Treasury, but whether you earn anything is down to luck.
How the draw works
Each bond has an equal chance of winning. The headline is the prize fund rate, which is the average return across all bonds if luck were perfectly even. The catch is that a handful of large prizes pull that average up, so most people win less than the rate suggests, and many win nothing at all in a given year.
Who they actually suit
- Higher-rate taxpayers who have used their Personal Savings Allowance, because prizes are tax free.
- People holding a large balance who value the safety and the small thrill.
- Anyone who would otherwise raid their savings — the faff of cashing in can act as a brake.
Who they do not suit
If you hold only a few hundred pounds, the odds mean you will probably win nothing, and a plain savings account paying real interest will leave you better off. The smaller your holding, the more the maths works against you.
The honest summary
Treat Premium Bonds as a tax-free safe home for cash with a lottery attached, not as an income. Keep your emergency fund somewhere that actually pays interest, and only move spare money into bonds once you have filled the accounts that guarantee a return. You can hold up to £50,000, and you can withdraw at any time without losing your stake. Just go in with your eyes open about the odds.