What are Premium Bonds?
Premium Bonds are run by National Savings and Investments, a Treasury-backed body. You can hold between £25 and £50,000. Bonds do not earn interest, instead they are entered into a monthly prize draw with tax-free prizes from £25 to £1m. NS&I advertises a ‘prize fund rate’ (around 4.15% in 2024) which is the total prize pool divided by the total bonds in issue, not what you personally earn. The median holder earns nothing in a given month. Capital is 100% backed by HM Treasury, so it is genuinely risk-free.
Hold the maximum £50,000 in Premium Bonds. Statistically, at a 4.15% prize-fund rate, an average holder might win around £2,075 a year in prizes, but the distribution is skewed: most months pay around £100, with occasional zero months and rare large wins. The same £50,000 in a 5% easy-access savings account earns £2,500 of taxable interest, more reliable but boring.
Holding £1,000 in Premium Bonds and expecting any prizes. Your odds at small holdings are so low that years can go by with nothing. They make sense as a high-balance, tax-free home for cash if you have already used your Personal Savings Allowance and Cash ISA.
A 60-second lesson on this, with a worked drill, lives inside the Finlo app. Free, forever, on the basics.