What are Premium Bonds?
Premium Bonds are a savings product from NS&I, the government-backed savings bank. You buy bonds, your initial investment is protected by the government, and each bond is entered into a monthly prize draw. If you win, you get a cash prize. If you don't, you still have your original money.
The key difference from a savings account is that Premium Bonds do not pay interest. Your return comes entirely from prizes. You might win several times in a year, or you might win nothing at all.
Each £1 you put in buys one bond with its own number. Every bond has an equal chance in each draw. The minimum purchase is £25 and the maximum anyone can hold is £50,000. A couple can hold £100,000 between them, with each person owning up to £50,000 in their own name.
The prize draw
NS&I runs a draw every month. Winners are picked by ERNIE, which stands for Electronic Random Number Indicator Equipment. The first draw was in June 1957, and ERNIE has been selecting winners ever since.
Prizes range from £25 up to £1 million. Two £1 million jackpots are drawn every month. In the September 2026 draw, there were 6,529,868 prizes worth a total of £497,086,175. Over time, ERNIE has drawn 586 £1 million prizes.
The odds of any single £1 bond winning a prize in any monthly draw are currently 21,000 to 1. These odds change from time to time. For comparison, the odds of winning the National Lottery Lotto jackpot are about 1 in 45 million per line, though the prizes and the way the two work are completely different.
All prizes are free of UK Income Tax and Capital Gains Tax. You don't declare them on a Self Assessment return and they don't count towards your Personal Savings Allowance. For details on the Personal Savings Allowance itself, see GOV.UK.
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Try our UK Payment Method Eligibility Checker free, here on this site →Understanding the prize fund rate
NS&I publishes a prize fund rate, currently 4.35% a year for the September 2026 draw. This rate is variable and changes regularly. Check nsandi.com for the current figure.
This rate does not mean you will earn 4.35% on your bonds. It is an average worked out across all bondholders, and a few large prizes pull that average up. Most people win less than the headline rate suggests. Some win nothing at all in a given year. A smaller number win more. The distribution is uneven by design: that's what makes it a prize draw rather than an interest payment.
If you want a predictable return, a savings account paying interest will give you that. Premium Bonds are for people who are comfortable with an uncertain return and like the idea of a chance at a larger prize.
Buying, cashing in and holding for children
Anyone aged 16 or over can buy Premium Bonds. You can also buy them for a child under 16 if you are their parent, guardian or grandparent. A nominated adult manages the bonds until the child turns 16, at which point control passes to them.
You can cash in your bonds at any time and get your money back at face value. There is no notice period and no penalty. Your capital is safe in cash terms, but because the bonds earn nothing unless they win, their real value can fall against inflation over time.
Prizes never expire. If you think you might have unclaimed winnings, NS&I has a prize checker on its website.
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How the guarantee works
Over 22 million people hold Premium Bonds, and part of the appeal is who stands behind them. NS&I is backed by HM Treasury. This means your entire holding is protected by the government, with no upper limit. Ordinary bank and building society accounts are covered by the Financial Services Compensation Scheme up to £85,000 per person per institution, so Premium Bonds offer stronger protection if you have a large sum.
Advantages and disadvantages
The case for them:
- You can cash in your bonds at any time without penalty, receiving back your original investment.
- All prizes are tax-free.
- Full government backing with no cap.
- A small chance of winning a large prize.
The case against:
- No guaranteed return. You might win nothing.
- Most holders win less than the prize fund rate implies.
- If your bonds don't win, their purchasing power diminishes over time due to inflation.
- A savings account paying interest will usually give you a more predictable result.
Premium Bonds suit people who have already built up some savings, want to keep their capital safe, and are happy to trade a guaranteed return for the chance of winning a prize. They are not a substitute for a savings account if you need your money to grow steadily.
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