Guides · 2026–27 tax year
Published
Are Premium Bonds Worth It? Who They Suit, and Who They Don't
Premium Bonds are easy to cash in and their prizes are tax-free. But prizes are random, and most people win less than the advertised rate. Whether they beat a savings account depends mostly on your tax band and how much you hold.
The short answer
- Premium Bonds tend to suit higher and additional rate taxpayers who already pay tax on their savings interest. Prizes are tax-free, but random, and a typical year pays less than 4.35%.
- Premium Bonds give no tax benefit to basic rate taxpayers whose interest is under £1,000 a year, because that interest is already tax-free.
- Premium Bonds pay out more reliably the more you hold. £50,000 typically wins £1,900 a year, while £1,000 wins nothing in more than half of years.
- Premium Bonds are rarely a good fit for children. Most children pay no tax on savings, and small amounts often win nothing.
How much Premium Bonds pay
Premium Bonds don't pay interest. Instead, each £1 bond is entered into a prize draw every month. Prizes are tax-free. NS&I, which runs Premium Bonds, is backed by the Treasury, so you always get your money back.
NS&I says its prize fund rate is 4.35% from the September 2026 draw. Each £1 bond has a 1 in 21,000 chance of winning each month. NS&I can change the rate and the odds at any time.
The 4.35% is an average. A few huge prizes of £1 million and £100,000 push it up, so most people win less than 4.35% in a normal year. The table shows what you'd win in a typical year, based on NS&I's prize table for September 2026 and 200,000 simulated years for each amount.
| Holding | Typical year | 8 years in 10 | Years with no prize |
|---|---|---|---|
| £500 | £0 | £0 to £100 | About 75% |
| £1,000 | £0 | £0 to £100 | About 57% |
| £5,000 | £150 | £25 to £350 | About 6% |
| £10,000 | £350 | £150 to £675 | Under 1% |
| £20,000 | £725 | £425 to £1,225 | Almost none |
| £50,000 | £1,900 | £1,350 to £2,725 | Almost none |
The examples below compare Premium Bonds with a savings account paying 5%. Moneyfacts reported top easy-access rates of 5.00% on 24 September 2026. These rates can change at any time and some have conditions. Tax on interest uses this tax year's rates of 20%, 40% or 45%. Unless an example says otherwise, it assumes you have no other savings interest.
Premium Bonds vs a savings account over 5 and 10 years
If you leave interest in a savings account, the interest earns interest too. Premium Bonds only grow like this if you reinvest your prizes. NS&I can do this for you automatically, up to the £50,000 limit, and new bonds go into the next draw.
The table shows £20,000 left for 5 and 10 years. The account pays 5% a year and the interest stays in the account. Tax is taken each year at the rates from 6 April 2027, which are 22%, 42% or 47%. The Premium Bonds figures reinvest every prize and come from 50,000 simulated runs.
| £20,000 left for | 5 years | 10 years |
|---|---|---|
| 5% account, no tax (such as a cash ISA) | £25,526 | £32,578 |
| 5% account, basic rate taxpayer | £25,406 | £31,951 |
| 5% account, higher rate taxpayer | £24,186 | £29,015 |
| 5% account, additional rate taxpayer | £22,794 | £25,979 |
| Premium Bonds, typical result | £24,250 | £29,600 |
| Premium Bonds, unlucky (1 run in 10 does worse) | £23,300 | £27,850 |
| Premium Bonds, lucky (1 run in 10 does better) | £25,700 | £32,525 |
With no tax, the account ends up about £3,000 ahead of a typical Premium Bonds run after 10 years. Basic rate taxpayers lose only a little of that to tax, because their first £1,000 of interest each year is tax-free. For higher rate taxpayers, the two end up close, with Premium Bonds slightly ahead. For additional rate taxpayers, even an unlucky Premium Bonds run beats the account.
These figures assume the 5% rate and the prizes stay the same for 10 years. Both can change at any time. Rising prices also mean the money will buy less in 10 years' time, whichever option you choose.
Premium Bonds if you have £50,000
£50,000 is the most you can hold. In a typical year, Premium Bonds beat a 5% account for higher and additional rate taxpayers, but not for basic rate taxpayers. On average, £50,000 wins £2,175 a year, but a typical year wins £1,900. You get 50,000 entries a month, so a year with no prize almost never happens.
£50,000 for a year: Premium Bonds or a 5% savings account
- Premium Bonds, typical year, tax-free
- £1,900
- 5% account, basic rate taxpayer: £2,500 minus 20% on the £1,500 above the £1,000 allowance
- £2,200
- 5% account, higher rate taxpayer: £2,500 minus 40% on the £2,000 above the £500 allowance
- £1,700
- 5% account, additional rate taxpayer: £2,500 minus 45% on all of it
- £1,375
Each row is what you keep after tax. The account figures assume the rate stays at 5% all year.
Not every year is typical. In a poor year, £50,000 might win only £1,350, which is less than the account leaves a higher rate taxpayer. A cash ISA paying 5% would keep all £2,500 for anyone, but you can only put £20,000 a year into ISAs.
Premium Bonds if you have £10,000 to £20,000
With £10,000, a 5% account usually pays more. It pays £500 a year, while Premium Bonds typically win £350. If you're a basic or higher rate taxpayer with no other savings, that £500 is tax-free.
With £20,000, your tax band starts to matter. Premium Bonds typically win £725, and a 5% account pays £1,000 before tax. That's more than a higher rate taxpayer's £500 tax-free allowance, and additional rate taxpayers have no allowance at all. The tax band sections below show what each band keeps.
Premium Bonds with £1,000 or less
With £1,000 or less, a savings account will usually pay more, because Premium Bonds win nothing in most years. With £1,000, you win nothing in about 57% of years. With £500, it's about 3 years in 4. Almost all prizes are £25, £50 or £100. A 5% account pays £50 a year on £1,000, every year. That's tax-free for basic and higher rate taxpayers with no other savings interest.
Premium Bonds if you're a basic rate taxpayer
Basic rate taxpayers can earn £1,000 of savings interest a year tax-free. This is called the Personal Savings Allowance. At 5%, that covers the interest on £20,000. Up to that amount, savings interest is just as tax-free as Premium Bond prizes.
Basic rate taxpayer, £20,000 for a year
- 5% account: £1,000 of interest, all inside the £1,000 allowance
- £1,000
- Premium Bonds, typical year
- £725
On £20,000, Premium Bonds win between £425 and £1,225 in 8 years out of 10, so in a lucky year they'd come out ahead.
If you're on a low income, you may get even more tax-free interest. If your other income, such as wages or pensions, is under £17,570, up to £5,000 more interest can be tax-free. This is called the starting rate for savings.
Premium Bonds if you're a higher rate taxpayer
Higher rate taxpayers can earn £500 of interest tax-free, and pay 40% tax on the rest. Whether Premium Bonds come out ahead depends on whether other savings already use up that £500.
Higher rate taxpayer, £20,000 for a year
- 5% account, no other interest: £1,000 minus 40% on £500
- £800
- 5% account, allowance already used: £1,000 minus 40% on all of it
- £600
- Premium Bonds, typical year
- £725
If the £500 allowance is free, the account pays more than a typical Premium Bonds year. If it's already used, Premium Bonds typically pay more.
A cash ISA paying 5% would keep the whole £1,000. You can put up to £20,000 a year into ISAs. From 6 April 2027, only £12,000 of that can go into a cash ISA if you're under 65. From the same date, tax on savings interest rises to 22%, 42% and 47%, which increases what tax-free options save.
Premium Bonds if you're an additional rate taxpayer
Additional rate taxpayers don't get a tax-free allowance, so all their interest is taxed at 45%.
Additional rate taxpayer, £20,000 for a year
- 5% account: £1,000 minus 45% on all of it
- £550
- Premium Bonds, typical year
- £725
On £20,000, Premium Bonds win between £425 and £1,225 in 8 years out of 10, so in a poor year the account would come out ahead.
On £20,000, a typical Premium Bonds year pays about 3.6%. To keep the same after 45% tax, a savings account would need to pay about 6.6%. At 40% tax, it would need about 6%.
Premium Bonds for children and grandchildren
Premium Bonds are rarely a good fit for children. Most children pay no tax on savings anyway, because they have their own tax-free allowances, just like adults. So tax-free prizes don't help much, and children are usually given small amounts that often win nothing.
Say a grandparent gives a child £500 of Premium Bonds. In about 3 years out of 4, they win nothing. The same £500 in a 5% savings account pays £25 a year, and the child pays no tax on it. Over 18 years, rising prices also mean the £500 buys less. If prices rise by 2% a year, after 18 years it will buy what about £350 buys today.
The exception is money from a parent. If money from a parent earns a child more than £100 of interest in a tax year, the parent is taxed on all of it.
A parent gives their child £5,000
- 5% account: interest
- £250
- Over £100, so all £250 counts as the parent's. Higher rate parent who has used their allowance: 40% tax
- −£100
- Left after tax
- £150
- Premium Bonds, typical year, not caught by the rule
- £150
GOV.UK doesn't mention Premium Bonds in the £100 rule. Prizes aren't taxed, so there's no interest for the rule to catch.
The £100 rule doesn't apply to money from grandparents, other relatives or friends. It also doesn't apply to a Junior ISA, where up to £9,000 a year in 2026–27 earns tax-free interest. Money in a Junior ISA is locked away until the child turns 18. Premium Bonds for under-16s can be cashed in at any time by the parent or guardian who manages them. Our guide to giving shares to children explains the £100 rule for shares.
Premium Bonds for an emergency fund or a tax bill
An emergency fund, or money saved for a tax bill, needs to be there when you need it. The amount you put into Premium Bonds doesn't go down, and NS&I says you get your money 3 to 5 days after cashing them in, with no penalty. But what you earn on the money is down to luck. Self Assessment bills are due on 31 January and 31 July, so tax money may only be held for a few months. Fewer months means fewer draws, and results vary even more.
Say a higher rate taxpayer has a £10,000 emergency fund and no other savings. A 5% account pays £500, exactly their £500 tax-free allowance, so there's no tax to pay. Premium Bonds typically win £350 on £10,000. So even for higher rate taxpayers, a small savings pot is often tax-free anyway.
Premium Bonds for pensioners
Many pensioners pay no tax on their savings interest, so tax-free prizes don't help them. For them, a 5% savings account pays more than a typical Premium Bonds year. The full new State Pension is £241.30 a week. That's about £12,548 a year, just under the £12,570 you can earn before paying income tax. So someone with only the State Pension can earn about £6,000 of savings interest tax-free.
Pensioner on the full new State Pension only, £40,000 of savings
- 5% account: interest
- £2,000
- Tax-free under the £5,000 starting rate and £1,000 Personal Savings Allowance
- −£2,000
- Tax to pay
- £0
- Premium Bonds, typical year on £40,000
- £1,500
A private or workplace pension on top reduces the £5,000 starting rate pound for pound. Once other income passes £17,570, it's gone, and only the £1,000 Personal Savings Allowance is left.
For Pension Credit, Premium Bonds count as savings, the same as a bank account. Savings up to £10,000 don't affect it. Above that, every £500 counts as £1 a week of income. So £20,000 of savings counts as £20 a week.
Premium Bonds if you claim Universal Credit
Premium Bonds don't help with Universal Credit, because they count as savings, the same as a bank account. Under £6,000 doesn't affect the award. Between £6,000 and £16,000, each monthly payment drops by £4.35 for every £250. Above £16,000, you usually can't claim.
So £10,000 in Premium Bonds is £4,000 over the £6,000 limit. That's 16 lots of £250, which takes £69.60 off each monthly payment. This is the same whether the money is in Premium Bonds or a bank account.
Premium Bonds for long-term savings
Premium Bonds give you back the same amount you put in, plus any prizes. Over many years, rising prices mean that money buys less, and typical prizes may not make up the difference. People saving for decades, such as for retirement, often compare other kinds of saving and investing as well. These have their own risks, including losing money. Prizes are also random, so you can't rely on them for a regular income.
When to get professional help
What suits your savings depends on your tax band, how much you have, how long you'll keep it and when you might need it. A regulated financial adviser can look at your situation. You should also get advice if your income is near £100,000, where you start to lose your tax-free Personal Allowance, or if trusts or living abroad are involved. If you claim benefits, a benefits adviser can check how your savings affect them.
Work out the tax on your own savings
Add what you hold and what you're adding, and see what each leaves after tax, year by year, and when you can get it.
Try the savings calculator →Sources on GOV.UK: Tax on savings interest: how much is tax free, Interest on savings for children, Universal Credit: money, savings and investments, Pension Credit: eligibility. Last checked 5 October 2026.
This is an estimate, not financial or tax advice. It may contain mistakes and does not cover every situation, so check your figures with HMRC or a qualified adviser before you rely on them.