The thrill of the notification on your email or the dropping of a prize notification letter with an enclosed cheque telling you that you have won a prize in the monthly draw from the NS&I Premium Bonds.
Exciting right? But what is the reality when it comes to considering whether to put money into NS&I Premium Bonds or not. Well let’s get into it.
In its simplest form Premium Bonds is a cash deposit facility provided by NS&I who are the UK government’s saving bank, offering 100% security on all investments because it is backed by HM Treasury.
You can contribute up to £50,000 per person, with a minimum contribution of only £25.
However, unlike a traditional bank savings account, there is no interest payable. Instead, you are entered into a monthly prize draw (in a similar way to say a lottery) and prizes are won instead.
This is all done through a machine known as ERNIE (Electronic Random Number Indicator Equipment). NS&I are currently using the 5th version of the machine and it takes approximately 12 minutes to complete the monthly draw.
As at September 2025, the ‘odd’s are 22,000 to 1 for every £1 bond in the draw, with an annual prize rate of 3.60% which is variable. Prizes vary from £25 to £1million (source: https://www.nsandi.com/products/premium-bonds). Any prizes won are tax free.
So what do I really think about them?
I would consider them to be tax efficient cash deposits with the opportunity to win lottery style prizes but unknown returns and relatively easy access. But I wouldn’t be too influenced by the thrill of the notification or the slim but possible odds of winning the larger prizes.
So when would you consider using them, and when wouldn’t you?
When you would:
1. For short term savings that may need to be accessed within the next 2-3 years.
2. For cash deposits that are required, which cannot be put into an ISA tax wrapper.
3. For gifts to children and grandchildren where investment is not wanted/needed.
When you wouldn’t:
1. For any monies that you do not need to access in the next 2-3 years and want to maximise the growth on, where investing would be more appropriate*.
2. When you have not yet used your ISA allowance (currently £20,000 for the 2025/26 tax year).
3. For any monies that you need instant access (it typically takes 3-5 banking days to make and receive a withdrawal).
So there you have it, my thoughts on premium bonds and when you might consider using them!
*Investments carry risk.
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