Premium Bonds are one of the most well-known savings products in the UK — and also one of the most misunderstood. They're not quite a savings account and not quite a lottery. They're something in between, run by NS&I (National Savings and Investments), which is backed by the government.
Instead of earning interest on your savings, your bonds are entered into a monthly prize draw. You could win nothing, you could win £25, or you could win the £1 million jackpot. The money you put in is always safe — you can get it back in full at any time. It's only the returns that are uncertain.
This guide explains how Premium Bonds actually work, what the current prize rate means for realistic winnings, and the calculator above gives you an honest estimate based on your holding.
The Basics — What Are Premium Bonds?
Premium Bonds are issued by NS&I — National Savings and Investments — a government-backed savings organisation. Because NS&I is backed by HM Treasury, your money is 100% secure regardless of the amount. There's no FSCS limit to worry about, unlike with a bank or building society.
You can hold between £25 and £50,000 in Premium Bonds. Each £1 is a bond, and each bond has an equal chance of winning a prize each month. The minimum you can buy at one time is £25.
Prizes range from £25 to £1 million. All prizes are tax-free, regardless of how many you win or what tax bracket you're in. This tax-free status is one of the key features, particularly for higher and additional-rate taxpayers.
The Prize Rate — What It Actually Means
NS&I publishes a headline prize rate — currently around 4.40% annually. This is not an interest rate you receive. It's the total value of prizes paid out each month expressed as an annual percentage of the total bond holding across all Premium Bond holders.
What this means in practice: if you hold £10,000 in Premium Bonds, the expected value of your prizes over a year is approximately £440 — assuming average luck. But that £440 might come as 17 wins of £25 and one win of nothing in most months, or as zero wins in most months and one lucky month. The distribution is random.
The prize rate is an average across all holders. Some people with £10,000 will win more than £440 in a year. Many will win less. A small number will win nothing. A very small number will win significantly more if they hit one of the larger prizes.
The prize rate is a useful indicator of expected value, but it is not a guaranteed return. This randomness is the fundamental thing to understand about Premium Bonds.
The Prize Structure
Prizes are paid monthly. The draw uses ERNIE — Electronic Random Number Indicator Equipment — to select winning bond numbers at random.
The prize tiers are:
- £1,000,000 (jackpot — 2 per month) — Tax-free
- £100,000 — Tax-free
- £50,000 — Tax-free
- £25,000 — Tax-free
- £10,000 — Tax-free
- £5,000 — Tax-free
- £1,000 — Tax-free
- £500 — Tax-free
- £100 — Tax-free
- £50 — Tax-free
- £25 — Tax-free
The vast majority of prizes are £25. The higher prizes exist but the odds of winning them with a typical holding are very low. With £50,000 held — the maximum — the chance of winning the £1 million jackpot in any given month is approximately 1 in 48 billion. Worth being aware of when assessing the product.
How to Buy Premium Bonds
Premium Bonds are only available directly from NS&I — not through banks or brokers. You can buy them:
- Online at nsandi.com
- By phone (NS&I customer service)
- By standing order (automatic monthly top-up)
There's no age restriction for holding Premium Bonds as an adult, and you can buy them as a gift for children (though they're held in trust by a parent or guardian until the child is 16). For a child-specific savings product with a similar government backing, a Junior ISA may be worth comparing.
Accessing Your Money
Your bonds can be cashed in at any time. There's no notice period and no penalty. Once you request a withdrawal, NS&I typically processes it within a few working days directly to your nominated bank account.
Bonds cashed in mid-month don't enter that month's prize draw — they need to be held for a full calendar month to be eligible. So if you buy bonds on 15 March, they first enter the May draw.
Premium Bonds vs a Savings Account
This is covered in detail in our Premium Bonds vs savings account guide, but the short version:
At most holding levels, a good easy-access savings account currently offers a more predictable return than the expected prize winnings from Premium Bonds, at comparable rates. Premium Bonds become more attractive for higher and additional-rate taxpayers, because the tax-free status of prizes means the effective return is higher than the headline prize rate suggests.
The other consideration is the lottery element — some people value the possibility of a large prize, even if the expected value is the same as (or slightly below) a savings account. This is a personal preference, not a financial calculation.
Many people hold both Premium Bonds and a savings account. The combination gives you a guaranteed return from the savings account alongside the tax-free prize potential from Premium Bonds.
Frequently Asked Questions About Premium Bonds
Yes. Premium Bonds are issued by NS&I, which is backed by HM Treasury. Your capital is 100% secure up to the maximum £50,000 holding. This is a higher level of protection than the £85,000 FSCS limit that applies to bank deposits — but note that £50,000 is the maximum you can hold, so the comparison is most relevant at higher balances.
NS&I reviews the prize rate periodically, typically in line with Bank of England base rate changes. The prize rate on this page and in the calculator is updated automatically when NS&I announces a change.
Yes. Premium Bonds can be bought for children under 16 by a parent, guardian, or grandparent. The bonds are held in the child's name but managed by the responsible adult until the child turns 16.
The bonds remain eligible for prizes for up to 12 months after the date of death. After that, the estate can apply to cash them in. NS&I has a bereavement service to assist with this process.
No. All Premium Bond prizes are completely tax-free and do not need to be declared on a tax return, regardless of the amount or how many prizes you win.
NS&I sends prize notifications by post or email, and prizes under £5,000 are paid directly into a nominated bank account or can be rolled back into new bonds. You can also check on the NS&I website or app using your holder's number. Unclaimed prizes do not expire — NS&I keeps records going back decades.
This guide provides general information about Premium Bonds. The prize estimator uses published NS&I odds and prize rates — actual results vary by individual and cannot be predicted. Premium Bond rates are subject to change. This is not financial advice. For current rates and full terms, visit nsandi.com.