Premium Bonds
An NS&I savings product where instead of earning interest, your money is entered into a monthly prize draw. All prizes from £25 up to £1 million are completely tax-free.
By Omair SaoLast reviewed — rates for the 2026/27 tax year. See how we check our figures.
How It Works
You buy Premium Bonds from NS&I (min £25, max £50,000). Each £1 bond is entered into a monthly prize draw. Prizes are tax-free. Your capital is 100% safe as it is backed by HM Treasury. You can also buy for children under 16.
Tax Treatment
All prizes are completely free of income tax and CGT. They do not count towards the Personal Savings Allowance or any tax thresholds.
Tax Advantages
- All prizes are completely free of income tax
- Prizes do not count towards the Personal Savings Allowance
- No need to declare winnings on Self Assessment
- Can buy for children under 16
Who Is This Suitable For?
Anyone wanting a safe, tax-free savings option. Particularly attractive for higher rate taxpayers who have used their PSA and ISA allowances.
Worked Example: A full £50,000 holding over one year
- 1You buy the maximum £50,000; each £1 Bond enters every monthly draw once held for a whole calendar month.
- 2Suppose your prizes over twelve months total £1,500 — sixty £25 prizes — which is 3% of the holding (an assumption; real results vary widely).
- 3All £1,500 is tax-free and nothing goes on a tax return.
- 4The same £1,500 as savings interest would count towards your Personal Savings Allowance, with any excess taxed at your marginal rate.
Result: For someone whose ISA and Personal Savings Allowance are already used up, the prizes are pure tax-free return; for everyone else the comparison is with a plain interest rate.
Illustrative figures using the 2026/27 rules on this page, last checked on 25 September 2026.
Advantages and Drawbacks
Advantages
- Capital is backed by HM Treasury, so there is no bank failure risk and no FSCS limit to worry about.
- Every prize, including the £1 million jackpot, is free of income tax and CGT.
- Bonds can be bought for a child under 16 by anyone aged 16 or over.
Drawbacks
- There is no guaranteed return: a holder with average luck earns less than the headline prize fund rate, because a few huge prizes pull the average up.
- Bonds bought this month are not in a draw until the month after next, so the first weeks earn nothing.
- Odds of 21,000 to 1 per £1 Bond at the time of writing mean a small holding can go years without a prize.
Notes for Limited Company Owners
Premium Bonds are held by individuals, not companies, so surplus company cash cannot be parked in them without first being extracted. Directors who draw large dividends and have exhausted their Personal Savings Allowance sometimes use the £50,000 limit as a tax-free overflow for their personal cash reserve, but prizes are luck-based, so do not rely on them to cover a January tax bill.
Common Mistakes
- Holding a few hundred pounds and expecting a meaningful return.
- Forgetting to tell NS&I about a new address or bank account, which is how prizes end up unclaimed.
- Ignoring that the prize fund rate is variable and has been cut when interest rates fell.
Who Should Avoid It
Basic-rate taxpayers with unused Personal Savings Allowance, who would usually do better with a competitive fixed-rate account, and anyone who needs predictable income.
Official Sources
The rules on this page come from the following official pages and were checked on 25 September 2026. Read how we check our figures.
Related Calculators
Frequently Asked Questions
What are the odds of winning?
Approximately 21,000 to 1 per £1 bond per month. With £50,000 you would statistically expect around 28 prizes per year.
Can I buy for my child?
Yes, anyone aged 16+ can buy Premium Bonds for a child under 16.
Are they better than a savings account?
For higher rate taxpayers who have used their PSA, Premium Bonds can be more tax-efficient. Returns are luck-based rather than guaranteed.