How Premium Bonds work

Premium Bonds are a savings product from NS&I (National Savings and Investments), backed by HM Treasury. Unlike ordinary savings, you don’t earn interest — instead, your money is entered into a monthly prize draw. Each £1 bond has an equal chance of winning in every draw. Prizes range from £25 to £1 million and are completely tax-free.

The prize fund rate — currently 4.40% — determines the total pot of prizes paid out each month. NS&I uses this to set the number of prizes at each tier. The odds of any individual £1 bond winning a prize in a given month are approximately 21,000 to 1.

Premium Bonds Key Facts 2025

Prize fund rate: 4.40% · Odds per £1 bond per month: ~21,000 to 1 · Minimum holding: £25 · Maximum holding: £50,000 · Tax on winnings: Nil (all prizes tax-free) · Prizes: £25 up to two £1 million jackpots per month

Premium Bonds vs savings accounts — who wins?

For basic rate taxpayers with savings below the £1,000 Personal Savings Allowance, a good savings account will statistically beat Premium Bonds in the long run — guaranteed interest is worth more than expected lottery-style returns at the same headline rate.

For higher and additional rate taxpayers who’ve exhausted their PSA (£500 and £0 respectively), Premium Bonds have a real advantage: all winnings are completely tax-free regardless of amount, while savings interest above the PSA is taxed at 40–45%. For large holdings in higher tax brackets, the effective after-tax return from bonds can exceed what’s achievable from a taxable account.

A Cash ISA eliminates this tax disadvantage but may pay a slightly lower rate than the best instant-access accounts. The comparison depends heavily on your tax situation and savings rate.

Frequently asked questions

Are Premium Bond winnings tax-free?
Yes — all Premium Bond prizes are completely tax-free, regardless of the amount. This is one of the product’s unique advantages, especially for higher-rate taxpayers who have exhausted their Personal Savings Allowance. Unlike ISA interest, there’s no annual contribution limit on winnings being tax-free — the tax exemption applies to the full £50,000 holding throughout the year.
How long does it take to be entered in the draw?
Bonds become eligible for the prize draw from the second month after they are purchased. So bonds bought in March 2025 first enter the May 2025 draw. NS&I holds draws at the start of each month and notifies winners by post, email, or via the NS&I app. Unclaimed prizes don’t expire — NS&I holds them indefinitely and you can check at any time via their prize checker tool.
Can I hold Premium Bonds for my children?
Yes — parents, grandparents and legal guardians can buy Premium Bonds for children under 16. The child is the bondholder and legal owner, but the adult manages the account until the child turns 16. The same £50,000 maximum applies per child. Any prizes won go into a nominated bank account (the adult’s) until the child takes over the account at 16.