In the world of personal finance, Premium Bonds are one of Britain’s most popular savings products. More than 24 million people hold them, hoping for a tax-free windfall from the monthly prize draw.
But are they really worth it? Or is the excitement masking poor returns?
In our recent episode of Keep The Change podcast, Tom Francis, Head of Personal Finance, and Financial Adviser Kristian Manton from Octopus Money unpack the realities behind Premium Bonds, and why they may or may not deserve a place in your savings plan.
This content is for informational purposes only and does not constitute personal financial advice. Before making any financial decisions, we recommend speaking with a qualified financial adviser who can assess your individual needs and circumstances.
What are Premium Bonds?
Premium Bonds, offered by NS&I and backed by the UK government, don’t pay interest. Instead, each £1 you hold enters a monthly prize draw, with tax-free prizes from £25 to £1 million. You can invest up to £50,000 in total, and while you can’t lose money, returns depend entirely on luck as there’s no guaranteed payout.
It’s a system that combines the safety of government savings with the thrill of a lottery. And that’s exactly where its appeal and its limitations begin.
The allure of Premium Bonds
Premium Bonds offer something no traditional savings account does: the chance to win up to £1 million, tax-free, every month. That potential makes them feel less like a savings product and more like a low-risk lottery, and that’s what draws people in.
Tom admits that even he felt the pull:
“I actually got really bad FOMO,” he laughs, referring to the buzz around big wins.
But the odds aren’t quite in your favour. According to Octopus Money’s new research, the average Premium Bond holder waits about three and a half years to win anything at all.* And when they do, it’s usually a small prize. The average return currently sits at around 3.8% per year, based on the prize fund rate, but individual experiences vary wildly.
Over £4.25 billion has been held in Premium Bond accounts that have had no activity in the past decade, earning zero interest, eroding individual wealth and missing the opportunity to grow through more effective investment vehicles.*
A legacy of loyalty
For many Premium Bond holders, it’s not just about the money, it’s about tradition. Many parents and grandparents often buy them as gifts for children, creating an emotional connection early on. Kristian reflects on this himself:
“It’s a bit of a legacy thing,” he says. “My parents set up a NatWest account when I was a baby, and I still have it today.”
The same loyalty applies to Premium Bonds. They’re familiar, trusted, and often sentimental. That emotional stickiness can make it hard to switch, even when better financial options exist.
It’s this blend of nostalgia and a small spark of excitement that keeps people loyal, even if the maths doesn’t always add up in their favour.
So, where do Premium Bonds fit in?
From a purely financial standpoint, they may not be the most rewarding option. As Kristian puts it:
“For the most part, they’re quite poor,” he says. “But if they motivate someone to save, or help them avoid risky decisions, they’re not a bad tool.”
If you’ve already used up your ISA allowance and set aside some emergency savings, Premium Bonds could be a place to put extra cash, but it’s worth remembering that they’re not designed to grow your money reliably over time.
“They’re not a strategy on their own,” Kristian explains. “But they can have a role in the wider plan.”
The best way to understand if and where Premium Bonds could fit into your financial strategy is to speak to one of our financial experts. Book a session.
🎧 Listen to the full conversation on Keep The Change
Want to hear more? Tune in to the latest episode of our podcast where Tom and Kristian dive into all things Premium Bonds, from how they compare to other savings options, to what really counts when you’re putting together a smart money plan. You can listen below, or via your platform of choice.
Sources
- Freedom of Information request submitted to NS&I by Octopus Money (FOI Ref: 2025.03.04), response received 17 April 2025.
