Are Premium Bonds a Good Investment?

Author:Ana Frincu

4 SEPT, 2025

For decades, Premium Bonds have held a special place in the hearts of British savers. They’re safe, simple, and just a little bit exciting, a rare combination in the world of personal finance.

Offered by National Savings & Investments (NS&I) and backed by the UK government, Premium Bonds work differently from your average savings account. There’s no monthly interest landing in your account; instead, every pound you hold is entered into a monthly prize draw, where winnings range from £25 to a life-changing £1 million, all tax-free.

320 x 50

This element of chance is part of their enduring charm. But in today’s world of higher interest rates and competitive savings products, many people are asking: are premium bonds a good investment anymore? Should you hold on to them, or is it time to move your money somewhere else?

In this guide, we’ll walk you through exactly how Premium Bonds work, the pros and cons, and whether it’s worth buying Premium Bonds in 2025, so you can decide if they still deserve a place in your savings plan.

What are Premium Bonds?

Premium Bonds are a hybrid between a savings account and a lottery. You buy them in £1 units (minimum £25 purchase) up to a maximum of £50,000. Instead of earning interest, each £1 bond is given its own unique number, which is entered into a monthly draw.

Every month, the ERNIE (Electronic Random Number Indicator Equipment) machine, which has been picking winners since 1957, selects winning numbers. Prizes range from £25 all the way to £1 million, and because they’re tax-free, you get to keep every penny you win.

Are Premium Bonds safe?

Premium Bonds are backed by NS&I, a government agency supported by the UK Treasury, meaning your money is fully protected, no matter the amount. In comparison, traditional savings accounts are covered by the Financial Services Compensation Scheme (FSCS), which protects up to £85,000 per person, per institution.

That said, since the maximum you can hold in Premium Bonds is £50,000, you'd get the same level of protection if you deposited that amount in a regular savings account under the FSCS.

This makes Premium Bonds one of the safest places to store your cash, though, “safe” doesn’t always mean “profitable.”

How can you buy Premium Bonds?

The simplest way to buy Premium Bonds is online via the NS&I website. You'll need to complete an application with your personal details, UK bank account info, and have a debit card ready.

If you're already a Bond holder and want to top up, you can use NS&I's ‘Pay by bank account’ feature to connect directly to your bank, or choose a standard bank transfer or debit card payment.

You must be 16 or over to buy Premium Bonds for yourself. However, anyone can buy them for a child under 16—as long as a parent or guardian is nominated to manage the Bonds until the child comes of age.

You can also apply by post (with a cheque) or over the phone if you prefer. Just remember: Bonds must be held for a full calendar month before they qualify for the prize draw.

How do Premium Bonds generate returns?

With a standard savings account, you know exactly what interest you’ll earn. With Premium Bonds, your “return” depends entirely on luck.

NS&I publishes an “annual prize fund rate”, essentially the average return if everyone’s luck was evenly spread. At the start of 2025, this was around 4.4%. But real life doesn’t work that way. Someone with £10,000 in bonds might win several £25 prizes in a year, while another person with the same holding might win nothing at all.

The odds per £1 bond are currently about 21,000 to 1 each month. This means the more bonds you hold, the better your chances of winning something, though even the maximum £50,000 holding won’t guarantee you a prize every month.

One thing in their favour is that all prizes are tax-free. This makes a difference for higher-rate taxpayers, especially those who have already used up their Personal Savings Allowance. But for basic-rate taxpayers with smaller balances, the tax benefit might not outweigh the lack of guaranteed returns.

Pros and cons

Pros of Premium Bonds		Cons of Premium Bonds
✅ 100% backed by the UK government – unmatched protection		❌ No guaranteed returns – you may go months or years without winning
✅ Tax-free prizes – whether £25 or £1 million, you keep it all		❌ Lower average returns than top savings accounts
✅ Instant access – withdraw anytime with no penalties		❌ May not beat inflation – your money could lose purchasing power
✅ Fun factor – monthly draws add excitement to saving		❌ Smaller holdings = lower odds of winning meaningful prizes
✅ Unique mix of saving + entertainment

Pros of Premium Bonds	Cons of Premium Bonds
✅ 100% backed by the UK government – unmatched protection	❌ No guaranteed returns – you may go months or years without winning
✅ Tax-free prizes – whether £25 or £1 million, you keep it all	❌ Lower average returns than top savings accounts
✅ Instant access – withdraw anytime with no penalties	❌ May not beat inflation – your money could lose purchasing power
✅ Fun factor – monthly draws add excitement to saving	❌ Smaller holdings = lower odds of winning meaningful prizes
✅ Unique mix of saving + entertainment

Are Premium Bonds a good investment in 2025?

So, are premium bonds a good investment this year? The answer depends on what you want from your money.

If you value total security, enjoy the thrill of a potential windfall, and have enough saved that you can afford a few months without a win, Premium Bonds can be a worthwhile part of your savings mix. They’re particularly appealing if you’ve maxed out your Personal Savings Allowance and want to avoid paying tax on interest.

On the other hand, if your main goal is to maximise returns and grow your savings steadily, you might find the unpredictable nature of Premium Bonds frustrating. A competitive fixed-rate account or Cash ISA could provide better and more reliable results.

For large savers, think close to the £50,000 limit, the odds of winning at least something over a year are fairly decent, and the tax-free nature of prizes can tip the balance in their favour. But for smaller amounts, is it worth investing in premium bonds? Probably only if you’re in it for the fun as much as the return.

Alternatives to Premium Bonds

If you decide Premium Bonds aren’t quite right for your needs, there are plenty of other options:

Cash ISAs: Tax-free interest and a range of fixed or variable rates.
General Investment Accounts (GIAs): Flexible investing outside of an ISA, but returns are subject to tax.
Fixed-rate savings bonds: Higher guaranteed returns if you can lock your money away.
Regular savings accounts: Attractive rates for those who can commit to monthly deposits.
Stocks and shares ISAs: Greater potential returns, but with real risk to your capital.

The best choice depends on whether you prioritise security, growth, accessibility, or a mix of all three.

👉 Read here for more on the difference between Premium Bonds and an ISA

So are Premium Bonds worth it?

Premium Bonds are a bit of a British institution. They offer unrivalled safety, tax-free potential, and the thrill of a monthly draw.

For some, that’s more than enough reason to hold them. For others, especially those focused on reliable, inflation-beating returns, the numbers just don’t stack up.

So, is it worth buying premium bonds? If you love the idea of safe money with a side of excitement, yes. If you want predictable growth, probably not. As with most things in personal finance, it comes down to knowing your priorities and playing the odds wisely.