Premium Bonds first went on sale on 1 November 1956, so this month they turn 70. Around 22 million people now hold about £138 billion in them, making them one of the UK's most popular savings products.
How Premium Bonds work
Premium Bonds don't pay interest. Instead, each £1 Bond is entered into a monthly prize draw, with prizes from £25 to £1 million. NS&I currently sets the annual prize fund rate at 4.35%, with odds of 21,000 to 1 for each £1 Bond each month. Both are variable and can change at any time. You can hold between £25 and £50,000, and you can cash in Bonds when you choose.
The appeal
Prizes are free from UK Income Tax and Capital Gains Tax, and money held with NS&I is backed by HM Treasury. That tax-free status may matter more to some savers after the Budget confirmed that tax rates on savings interest will rise by two percentage points from April 2027.
The catch
The prize fund rate is an average, not what each holder receives. Because prizes are spread unevenly, with a few large prizes and many smaller ones, most holders will get less than 4.35% in a typical year, and some will win nothing. A Freedom of Information request by AJ Bell found that 62% of people had never won a prize. With no interest paid, money that doesn't win can lose spending power to inflation.
Meanwhile, some savings and cash ISA rates have edged up since the Bank of England raised Bank Rate to 4% on 5 November.
What it means for savers
- Premium Bonds may suit people who value easy access, government backing and the chance of a tax-free prize, and who are comfortable with uncertain returns.
- If you want a predictable return, a savings account or cash ISA pays a stated rate, although interest outside an ISA may be taxable.
- If you're handling a late relative's estate, NS&I says it is contacting estates where some savings were missed in earlier bereavement claims.
Sources: NS&I, BBC Money Box, This is Money, AJ Bell, Bank of England
This article is general information only and is not financial advice. Rates and terms can change. If you're unsure what's right for you, consider speaking to a regulated financial adviser.