Are premium bonds a good investment?
Written By Boring Money
9 June, 2026
A third of the UK population holds Premium Bonds. That doesn't necessarily mean it's the right call.
What's the fuss about premium bonds?
Premium bonds disguise themselves as a sensible, safe thing to do with your money, but in fact offer relatively poor and uncertain returns.
Yet they’re extremely popular. Jemma Slingo, pensions and investment specialist at Fidelity International, points out that Premium Bonds are held by around a third of the population. Its research shows that savers typically hold them for around 10 years, with 850,000 under-16s also owning bonds, often gifted by family members.
The total annual prize money is currently calculated at 3.80% of the total, recently raised from 3.3%, but of course you’re not guaranteed to get anything. The odds of winning in the upcoming July draw are 1 in 22,000, a little ahead of last month’s 1 in 23,000. For comparison, the lifetime odds of being struck by lightning in the US are 1 in 15,300! Don’t kid yourself - most people won’t get anything like a 3.80% return on their money and have a negligible chance of winning the big £1 million prize.
Cash’s job is to be safe, known and steady. It’s a good home for shorter-term money when you can’t take the ups and downs of the stock market. If you like the safety of the government-backed NS&I, it's currently paying 3.45% on its Direct Saver. Would you rather get a guaranteed 3.45% or take a 22,000 to 1 punt that you might get something?
Get better rates elsewhere
Elsewhere, there are a number of Cash ISAs for tax-free savings offering compelling rates - some much higher than the Direct Saver's 3.45%. You can stay up to date with the latest and best Cash ISA rates on the market with our round-up here.
Savers need to remain alert, however. It is not clear which direction interest rates will go over the short-term and this could impact savings rates.
Sarah Coles, Head of Personal Finance at Hargreaves Lansdown, says:
The rise in the prize rate, and the increases to its other easy access products is NS&I playing catch up with the wider market. It did the same with its fixed rate accounts at the end of April and has finally bitten the bullet with its easy access products today. NS&I has a duty to offer decent value for savers, and has a fairly stretching fundraising target of £15 billion this financial year, so it needs to work harder to win savers over.
For huge fans of the institution, these rises may be enough, but it’s worth stressing that you can do much better in easy access accounts elsewhere. There’s no need to settle for less than 4%. The Cash ISA market is also incredibly competitive at the moment, so you can do much better elsewhere.
There will always be people drawn to Premium Bonds because of the vanishingly small chance of winning a life-changing sum of money, and for them the prize rate rising is a nice-to-have on a product they’re already committed to. However, if you have this money set aside for the long term, you need to bear in mind that in an average month, someone with average luck will still win nothing, so there’s a real risk of your money losing spending power after inflation. A recent AJ Bell freedom of information request found that fewer than 1% of Premium Bond prizes go to those holding less than £1,000.
Consider the tax benefits
We also need to talk about tax. Premium bond winnings are tax-free, however we have a Personal Savings Allowance that covers most of us. For example, basic rate taxpayers get the first £1,000 of interest tax-free. So - if you have the NS&I Direct Saver, for example, you could have just under £30,000 stashed here, earning that 3.45% interest a year, before tax becomes an issue.
We will begrudgingly say that premium bonds might suit some higher-rate taxpayers who have maxed out their annual ISA allowance of £20,000 a year already, and who can afford to roll the dice and like a monthly frisson of excitement. But for the vast majority of us, there are better options in town, offering either the certainty of cash or the better, longer-term potential of the stock markets.
While your money is safe in cash terms, inflation can steadily erode its real value, and returns from Premium Bonds are uncertain as they depend on prize draws. Over time, that can add up to a significant opportunity cost compared to investing.
This is especially important for children. Premium Bonds are a popular gift, but with such long time horizons, even small amounts invested in the stock market have much greater potential to grow.
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