If you’ve not got money in Premium Bonds, it’s likely you know someone who does. There are now 24 million people taking part in the government-backed savings scheme, with more than £127bn banked.
The investment product from National Savings and Investment (NS&I), owned by the government, gives savers a unique chance to win big prizes.
Every month, all of the millions of account holders are entered into a draw to win cash prizes ranging from £25 to £1 million, with two millionaires made at every draw.
Every £1 entered has a 22,000-to-one chance of winning. The minimum investment is £25, while the maximum is £50,000. This money is put up against a random digital prize picker called ‘Ernie’ – the Electronic Random Number Indicator Equipment – to decide the winners every month.
However, the savings held in Premium Bonds don’t accrue interest as with regular bank accounts. This has led some experts to question have viable they are for savers looking to maximise the returns on their money.
NS&I also recently cut its prize fund from 4 per cent to 3.8 per cent from April, marking the second drop of 2025 alone. This is the benchmark of the ‘average’ a saver can get throughout the year, but the random nature of the draw means there’s no guarantee of a return at all.
In practice, the figure means that for every £100 put into premium bonds, £3.80 will be paid out to account holders. But the odds of getting any prize at all are very low.
For even the lowest prize of £25, there in a one in 880 chance of success – just 0.11 per cent. For the top prize, the chance is one in 2.5 billion. So, incredibly unlikely.
For reference, the chances of winning the jackpot on the Lotto are one in 45 million.
For some, the poor odds mean Premium Bonds are just not worth it. Tom Francis, head of advice at Octopus Money says: “Honestly, if you want your money to work harder for you, there are better options than Premium Bonds. We get it, there is an excitement factor around them, however they don’t earn interest, and your savings won’t grow unless you win a prize.”
Get a free fractional share worth up to £100.
Capital at risk.
Terms and conditions apply.
Get a free fractional share worth up to £100.
Capital at risk.
Terms and conditions apply.
It’s worth noting as well that accruing zero interest on your savings means the money will lose value over time due to inflation. There are plenty of cash savings accounts offering rates above 4.5 per cent currently on the market and while banks can change this at any time, it is virtually assured it will never drop to zero.
Some may also want to consider investing in stocks and shares to carry their cash even further, although this comes with some risk.
“While investing in the stock market carries some risk, a well-diversified portfolio can help manage that risk and offers the potential for higher returns over time,” says Mr Francis.
“Unlike cash savings – and certainly unlike Premium Bonds – long-term investing allows your money to grow more effectively over many years. If you’re unsure where to start, speaking with a financial planner can help you build a personalised strategy connected to your goals.”
The landscape may be a little different for higher-rate taxpayers, though, who will have more money to try and maximise returns on. Diversification is a key way to do this, spreading out your money across different places to balance the risk and return.
This could include a small portion in Premium Bonds, but “the bulk of your savings should be in pensions, stocks and shares, an emergency fund, and high-interest savings accounts to ensure your money is working as effectively as possible,” says Mr Francis.
“Premium Bonds are most beneficial for higher-rate taxpayers who have already maxed out other tax-efficient options like pensions and ISAs for the financial year. Since Premium Bond winnings are tax-free, they can be a useful addition in this scenario.”
His advise echoes the guidance of money expert Martin Lewis, who advises his readers to tread carefully when it comes to Premium Bonds. The Money Saving Expert founder says the scheme is essentially a gamble, but a risk-free one as saving remain protected.
“It’s fine to put a non-significant portion of your money in them,” he writes, “provided you’re aware it’s more for fun than returns.”
When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.
