Premium Bonds — The Complete Guide
Premium Bonds UK — What they are, odds, prize rates, tax & how to invest.
What Are Premium Bonds?
Premium Bonds are a UK government-backed savings product where each £1 bond is an entry into a monthly prize draw. There’s no interest — instead you have a chance to win tax-free prizes from £25 up to £1 million.
The prize fund rate and prize distribution change from time to time; recent prize fund guidance places the annual equivalent around the mid-3% range, and odds are published as approximately 22,000 to 1 per £1 bond per monthly draw.
Prizes are tax-free and your capital is guaranteed by the UK government. For many savers Premium Bonds are attractive for capital safety plus the chance of a big, tax-free win; for others, the lack of guaranteed return and exposure to inflation make other accounts more suitable. (Official NS&I rules apply to all purchases.)
What are Premium Bonds?
Premium Bonds are a type of savings product issued by National Savings & Investments (NS&I), an executive agency of HM Treasury. Rather than paying interest, Premium Bonds enter each £1 in your holding into a monthly random prize draw. If a bond number is drawn you receive a tax-free cash prize. Prizes range from small amounts (the most common) to very large jackpots, including monthly £1 million prizes.
Two features make Premium Bonds distinctive:
Capital security — your original amount is backed by the UK government. There is no risk of losing your capital in normal circumstances.
Prize-based returns — there is no guaranteed interest; instead the product uses a prize fund which determines the expected (average) return. Your personal outcome depends entirely on whether you win.
Premium Bonds are therefore a hybrid between a secure savings account (capital preserved) and a lottery (potential large windfalls).
How Premium Bonds actually work
Bond numbers and entries
Each £1 you buy is allocated a bond number (so £100 buys 100 bond numbers). Each bond number is an entry into the monthly draws.
Bonds bought in a month enter the draw after they have been held for a full calendar month.
Monthly draws and the random generator
Draws happen monthly. NS&I uses specialised random number generation systems historically known as “ERNIE” to select winning bond numbers.
Prizes are allocated from a prize fund; the fund size and distribution determine how many prizes and what size are available for each month.
Allocation & payment
If you win, NS&I will normally notify you by your preferred contact method and credit money directly to your nominated bank account or reinvest as you’ve instructed. You can also choose to receive a cheque.
Prize structure and current prize fund rate
What prizes exist
Premium Bond prizes come in tiers: the smallest tier is the most common and the largest jackpots are the rarest. Typical prize bands include:
Top-tier: £1 million (usually two £1m jackpots each month).
High-value tiers: £100,000; £50,000; £25,000; £10,000; £5,000.
Mid tiers: £1,000; £500.
Lower tiers: £100; £50; £25 (the most frequent prizes).
The exact number of prizes in each band depends on the prize fund size for that draw and NS&I’s monthly allocation plan.
Prize fund rate (what it means)
NS&I publishes a prize fund rate, which is similar to an “expected annual return” expressed as a percentage of total money invested. That rate tells you the average prize value you’d expect to receive if luck were averaged across millions of bondholders — it is not a guaranteed interest rate.
In recent months the prize fund rate has been adjusted; for example the prize fund rate was announced at 3.60% from the August 2025 draw (down from earlier higher values during 2025). This change does not alter the published odds per £1 bond; it alters prize distribution and the expected value.
Why this matters: if you multiply the prize fund rate by the amount you hold, you get a theoretical expected return (not guaranteed). For example, £10,000 x 3.60% = £360 expected value across a year — but you could win more, less, or nothing.
Odds of winning — what “1 in X” actually means
Published odds
NS&I publishes odds for winning in the monthly draw so you can understand your chance per £1 of holding. A commonly used figure for recent draws is 1 in 22,000 per £1 bond per monthly draw. That means each £1 has the same statistical chance (shared across all bond numbers) of selection in a monthly draw.
How to use the odds practically
If you hold £1,000, your odds in any single month are roughly 1 in 22 to win something (because 1,000 chances × (1/22,000) ≈ 1/22).
Odds scale linearly with the number of bond numbers you hold: doubling your bonds doubles your chances.
Even with fairly high expected values, the distribution is skewed: most winners win small, and the largest prizes are very rare.
Expected wins vs reality
The prize fund rate gives a hypothetical average return. But the distribution is highly unequal: many savers will see zero wins in a year; a small fraction will win multiple lower prizes; a tiny fraction will win life-changing amounts.
Premium Bonds — Expected value & winning odds calculator
How to buy, gift and hold Premium Bonds
Who can hold Premium Bonds
Any UK resident aged 16+ can open an account. You can also buy Premium Bonds for a child (under 16), where an adult holds and manages the bonds on their behalf until the child turns 16.
Minimum and maximum
Minimum purchase: small — usually starting at £25.
Maximum holding per person: NS&I sets a maximum holding limit (commonly £50,000). Holding beyond the allowed limit does not create extra prize entries and can produce administrative complications; make sure you understand any aggregated maxima across different accounts or joint holdings.
How to apply and pay
You can apply online, by phone or by post. When you apply you’ll provide identity details and a bank account for prize payments. After verification your bonds are allocated and you begin to be eligible for draws after the required waiting period.
Joint holdings and gifting
You can hold bonds in joint names (for couples) — each named holder can claim prize money or cash in their portion. To gift bonds, you either open an account in the recipient’s name or purchase for a minor using the managed-by-adult option.
How to check for wins, receive prizes and cash in
Checking for wins
NS&I provides an online Prize Checker and an app where you can view recent winning numbers and see whether you’ve won in the past six months. NS&I also notifies winners by email or SMS if you have set those contact methods.
Receiving prizes and reinvestment
You can instruct NS&I to pay prizes into your bank account, reinvest automatically into new bonds, or issue a cheque. Most winners choose direct bank payment or automatic reinvestment for speed.
Cashing in bonds
You can cash in all or part of your holdings at any time. NS&I will pay out the cash value (the capital you invested) normally within a few working days to your nominated bank account. There is no early-withdrawal penalty, but processing can take longer if NS&I requires identity verification.
Tax treatment (UK) and cross-border notes
UK tax position
Premium Bond prizes are tax-free in the UK: there is no Income Tax or Capital Gains Tax due on prizes, regardless of your usual tax bracket. You do not need to declare Premium Bond prizes on a UK tax return. This tax-free status is a core selling point for many investors.
For non-UK residents and foreign tax rules
The UK tax exemption applies to UK tax. If you are tax resident elsewhere (for example the United States or other countries), local tax rules may treat Premium Bond prizes as taxable income. It’s important to check local tax laws or consult a tax adviser if you live abroad or have cross-border tax obligations.
Holding limits, reinvestment and over-investment risks
Maximum holding
NS&I sets a maximum holding per person. Make sure total holdings across personal accounts (including any joint holdings where you are a named holder) do not exceed the published maximum otherwise you may be ineligible for prizes for the excess amount.
Reinvestment choices
If you win and set prizes to be reinvested, NS&I will buy new bond numbers on your behalf using the winning amount. This increases your future number of entries and hence your chance of winning again.
Over-investment and opportunity cost
Holding large amounts in Premium Bonds means you’re choosing potential prize-based returns over guaranteed interest elsewhere. If other savings products offer higher guaranteed returns (or if inflation is high), your real return can be negative after inflation even if you win occasionally.
Unclaimed prizes, bereavement and estate handling
Unclaimed prizes
A non-trivial number of prizes go unclaimed each year because NS&I doesn’t have current contact details or the winner didn’t cash a cheque. Public reporting in recent times shows millions of unclaimed prizes totalling tens of millions of pounds. It’s good practice to check the Prize Checker if you suspect you might have missed a win.
After a bondholder dies
Bonds are part of the deceased’s estate. NS&I will need the appropriate probate documents to release funds and any outstanding prizes; estates do need to follow the normal probate process if the value is above relevant thresholds. If a bondholder dies, contact NS&I to get guidance on required documents and timelines.
No expiry
NS&I holds unclaimed prizes indefinitely; there is no expiry as long as you can prove ownership. However, in practice locating long-held bond numbers can take administrative work.
Premium Bonds vs alternatives (quick comparison table)
| Product | Guarantee | Return type | Tax | Best for |
|---|---|---|---|---|
| Premium Bonds | UK government-backed | Prize-based (variable) | Prizes tax-free in UK | Savers who value capital security + chance of jackpot |
| Cash ISA (easy access) | FSCS-protected (up to limit) | Fixed/variable interest | Tax-free interest | Regular savers, tax-efficient long term savings |
| Fixed-term savings bond | FSCS-protected (up to limit) | Guaranteed fixed interest | Usually taxable | Savers who want predictable returns |
Who should consider Premium Bonds?
Good reasons to use Premium Bonds
You want capital security with government guarantee. If preserving your capital is your primary goal and you like the possibility of tax-free windfalls, these are very suitable.
You value tax-free prizes and do not need steady interest income. For people in higher tax brackets, the tax-free nature can be attractive.
You want flexible access without lock-in. You can cash in at any time with no penalty.
When Premium Bonds may be a poor choice
You need predictable income or interest. For savers who rely on interest for living costs or want guaranteed returns, other fixed-rate bonds or cash ISAs are better.
High inflation environment. If inflation significantly outstrips the prize fund rate, the real value of money may decline if you rarely win.
Worked example
Scenario A: Emily puts £25,000 in Premium Bonds. Prize fund rate = 3.6% (expected value). Expected monetary value per year = £900. But Emily’s actual result may be zero winnings most years; she might occasionally win a small prize or, rarely, a big one. Her capital is secure.
Scenario B: Tom places £25,000 in a 1-year fixed-term account paying 4.5% AER. His guaranteed return is £1,125 before tax; after tax (depending on his bracket) his net could be less. If Tom wants guaranteed return and can accept the FSCS protection limit, the fixed bond may be a better choice.
Practical tips
Keep your contact details up to date. Many unclaimed prizes are because people moved address or changed phone/email.
Use the Prize Checker monthly if you have a meaningful holding. Even small wins add up over time.
Consider splitting sum between Premium Bonds and a cash ISA if you want some chance of a jackpot but also guaranteed return.
If you live overseas: check local tax rules for prize taxation — UK exemption does not guarantee overseas exemption.
Common questions
Q: Are Premium Bond prizes taxed?
A: No — in the UK prizes are tax-free (no Income Tax or CGT).
Q: How many prizes go unclaimed?
A: Public figures indicate millions of unclaimed prizes worth in excess of £100 million collectively in recent years — check NS&I if you suspect you’ve missed a prize.
Q: Can I hold more than the maximum?
A: You should not exceed the published maximum holding limit; bonds over the limit will not be eligible to win prizes and create administrative issues. Check NS&I for the current maximum.
Q: If I win a prize is it counted as income?
A: In the UK it is not taxable income — you do not declare it as taxable income on a UK return.
Legal, regulatory and safety notes
Premium Bonds are issued and managed by NS&I which operates on behalf of HM Treasury. The capital of Premium Bond holders is backed by the UK government.
NS&I’s terms, maximum holdings, prize fund rates and prize distributions can be adjusted; always read the current customer agreement before purchasing. Official rules and terms supersede any guide.
Glossary
Bond number: Each £1 bought receives a unique number entered into draws.
Prize fund rate: NS&I’s published figure that expresses the expected average annual return across the total amount invested.
ERNIE: The random number generation system used for draws.
Prize Checker: NS&I’s tool (website/app) to check recent winning numbers.
FSCS: Financial Services Compensation Scheme — protects bank deposits up to its limits (not needed for Premium Bonds since they are government guaranteed).
Full checklist: how to buy, manage and cash in
Check NS&I’s current maximum holding and prize fund rate.
Decide how much you want to allocate (remember opportunity cost).
Apply online / by post / by phone; verify identity and bank details.
Choose prize payment instructions (bank, reinvest, cheque).
Keep contact details up to date.
Use Prize Checker monthly and keep records of bond numbers if provided.
To cash in, request redemption through NS&I — funds normally paid in a few working days.
Final summary & actionable recommendation
Premium Bonds are a unique, government-backed way to save: your capital is protected and you get a tax-free chance to win a variety of prize amounts. They are particularly attractive if you value safety and the chance of a large tax-free payout and especially if you’re in a higher tax bracket and worried about the tax on interest. However, because returns are not guaranteed and prize distribution is skewed towards small prizes, Premium Bonds are not a replacement for savings products when you need predictable return or protection against inflation.
If you want safety + chance: consider holding a portion (for example 10%–30% of your liquid savings) in Premium Bonds and the rest in guaranteed interest-bearing accounts or ISAs. If you need predictable returns or are saving for a near-term goal, prefer a fixed-rate bond or an easy-access cash ISA.