Premium Bonds: Safe Savings or a Gamble?

Premium Bonds are one of the UK’s most talked-about savings products—but are they really the best place to put your money in 2025? With interest rates climbing and savers getting more selective, it’s time to take a clear-eyed look at whether these government-backed “no-risk” savings accounts are worth it.

Let’s dive into how Premium Bonds work, who should use them, and whether they still make sense compared to high-interest savings accounts from UK banks.

What Are Premium Bonds?

Premium Bonds are a savings product issued by NS&I (National Savings & Investments), which is backed by the UK government. But unlike traditional savings accounts, they don’t pay interest.

Instead, your money enters a monthly prize draw, where you could win between £25 and £1 million—tax-free.

Each £1 you invest buys you one bond (minimum £25), and the more bonds you hold, the higher your chances of winning.

How Do Premium Bonds Work?

Here’s the basic breakdown:

• You buy bonds in £25 increments, up to a maximum of £50,000 per person.

• Each bond is entered into a monthly prize draw.

• The “interest” is paid via random prize winnings, rather than a guaranteed return.

• All prizes are tax-free.

• You can cash out your full amount at any time.

It’s more like a lottery for savers, but without risking your capital.

Current Odds and Prize Fund (2025)

Source: NS&I Official Site

Premium Bonds vs High-Interest Savings Accounts

Let’s compare Premium Bonds with a standard high-yield savings account from UK banks like Lloyds, TSB, or Nationwide.

Verdict: If you value guaranteed returns, go with a high-interest savings account. But if you enjoy risk-free excitement and tax-free prize potential, Premium Bonds could suit you.

Realistic Expectations: What You Might Win

Assuming you hold £5,000 in Premium Bonds, here’s an average projection based on current prize fund rates and draw odds:

Returns are not guaranteed. Many savers hold £10,000+ and don’t win anything for months. On the flip side, some win £1,000+ from a small investment.

Best Use Cases for Premium Bonds

✅ Great for:

• Emergency funds (easy withdrawal)

• Avoiding tax on savings

• People near or over their Personal Savings Allowance (PSA)

• Gifting savings to children

• Diversifying part of your savings pot

❌ Not ideal for:

• Guaranteed income or interest

• Retirement income strategies

• Beating inflation consistently

• Low-income savers needing stability

Premium Bonds vs ISAs: Which is Better?

If you’re comparing Premium Bonds to Cash ISAs or Stocks & Shares ISAs, the key is what you value more: fixed returns or prize potential.

If you’ve used up your ISA allowance, Premium Bonds can be a next step without risking your capital.

How to Buy and Manage Premium Bonds

Step-by-step:

1. Open an NS&I Account
   Visit NS&I’s Premium Bonds page.

2. Deposit at least £25
   You can add more via bank transfer, debit card, or standing order.

3. Check results monthly
   Use the NS&I app or website to see if you’ve won.

4. Withdraw anytime
   Funds return to your bank account, typically within 3 working days.

Do Any Banks Offer Premium Bond Alternatives?

While no private UK bank offers an exact equivalent to Premium Bonds, some offer prize-linked savings or incentives:

• Halifax Savers Prize Draw
  Eligible if you have £5,000+ in savings—win up to £100,000 in monthly draws
  👉 More at Halifax

• Nationwide Start to Save
  Offers prize draws every 3 months for eligible savers
  👉 Nationwide Start to Save

Are Premium Bonds Safe?

Yes—your money is 100% protected by HM Treasury.

This goes even further than the Financial Services Compensation Scheme (FSCS), which protects up to £85,000 in savings. Premium Bonds are seen as ultra-safe, making them a preferred option for cautious savers.

Can Children Have Premium Bonds?

Absolutely. You can buy Premium Bonds for:

• Children under 16 (as a parent or guardian)

• Grandchildren or relatives (with consent from guardians)

They’re a popular gift, offering tax-free potential while teaching kids about money and saving.

Summary: Should You Buy Premium Bonds in 2025?

✅ Buy Premium Bonds if:

• You want to protect your capital with no risk

• You’re maxing out other tax-free savings

• You enjoy a chance-based return

• You like the idea of monthly prize excitement

❌ Avoid if:

• You need consistent income

• You’re a low-income saver who can’t afford to gamble with inflation

• You prefer guaranteed interest

Final Verdict

Premium Bonds are still a strong choice for those who:

• Want 100% safety

• Are tax-efficient savers

• Don’t mind trading guaranteed income for prize potential

But for higher returns, a top-paying savings account or Cash ISA from banks like Lloyds, HSBC, or Nationwide may deliver better results over time.

Learn More

• NS&I Premium Bonds Page

• Halifax Savers Prize Draw

• Nationwide Start to Save

• How FSCS Protection Works