What Are Premium Bonds?
NS&I Premium Bonds which are offered by National Savings & Investments (NS&I), are a unique savings product where your capital is entered into monthly prize draws instead of earning regular interest (as you would through saving or investment account). These bonds are fully backed by the UK government, ensuring your savings are 100% secure and best of all, they winnings are TAX FREE.
Key features:
- Minimum purchase: £25
- Maximum holding: £50,000
- Tax free prizes, ranging from £25 to £1,000,000 every month
- Withdraw funds anytime without penalties (although it might take a few days)
- Tax Free
The New Prize Rate vs. The Past
- Current Rate: The annual prize fund rate as of December 2024 is 4.65%, marking a significant increase from lower rates seen in recent years.
- Odds of Winning: Each £1 bond has a 1 in 22,000 chance of winning, improving significantly compared to the previous 1 in 24,000 odds.
- Prize Pool Details:
- The prize fund has increased in line with the rate hike, offering more high-value prizes that are all tax free.
- The total prize fund for January 2025 is estimated at £431,938,050, slightly below the March 2024 figure of £461,330,525.
How Much You Can Win
Below is an example of prize distributions for between 2024-2025:
| Value of Prizes | March 2024 | December 2024 (Estimate) | January 2025 (Estimate) |
|---|---|---|---|
| £1,000,000 | 2 | 2 | 2 |
| £100,000 | 88 | 83 | 82 |
| £50,000 | 177 | 167 | 166 |
| £25,000 | 353 | 332 | 329 |
| £10,000 | 883 | 830 | 823 |
| £5,000 | 1,766 | 1,664 | 1,648 |
| £1,000 | 18,452 | 17,426 | 17,277 |
| £500 | 55,356 | 52,278 | 51,831 |
| £100 | 2,212,098 | 2,072,099 | 2,001,028 |
| £50 | 2,212,098 | 2,072,099 | 2,001,028 |
| £25 | 1,490,033 | 1,509,458 | 1,815,854 |
| Total Prizes | 5,991,306 | 5,726,438 | 5,890,068 |
| Total Prize Fund | £461,330,525 | £435,686,300 | £431,938,050 |
What You’ll Probably Win
On average, a £1,000 NS&I investments offer limited chances of substantial winnings. Statistically:
- Monthly odds of winning a prize: 4.5% per £1,000 held.
- Most likely winnings: £25 to £50 a few times a year.
How Do They Compare to Savings Accounts?
Premium Bonds:
- Offer tax free prizes.
- Provide 100% government-backed security.
- Have potential for big wins but no guaranteed returns.
- A good way to diversity your investments for more opportunities for wealth accumulation.
How They Compare to Savings Accounts
- Premium Bonds’ prize fund rate is competitive with some savings accounts, but it’s not guaranteed (e.g., 5% on fixed-term accounts as of 2024).
- Savings accounts offer predictable interest, whereas Bonds rely on luck.
For predictable growth, savings accounts may outperform,. However, for those who enjoy a no-risk “lottery” experience, Bonds are unmatched.
What About Future Interest Rate Cuts?
As interest rates influence the prize fund rate, any Bank of England rate cuts could reduce the odds of winning and total prize fund. However, NS&I adjusts rates to remain competitive against other savings products.
How to Buy
Buying them is simple and can be done via the official NS&I website.
Key details:
- Minimum investment: £25.
- Maximum holding: £50,000 per individual.
- Accessible by: online, phone, or by post.
Final Thoughts
I personally have a small amount investing in bonds myself as what I use for part of my emergency fund. In my opinion though, it is usually better to in them when you have at least £5,000 to have a good enough chance of being able to win. Smaller funds may provide winnings but at a lower probability, but there is always still a chance!
Would you like more details on alternatives or specific comparisons? You are welcome to write or leave us a comment below.
If you liked this article, you might also like this article on capital gains tax.
Remember: None of this is investing advice, please seek a professional before making any financial decisions.
