Are NS&I Premium Bonds worth it? - Times Money Mentor (2024)

Earlier this year, the government cut the Premium Bond prize rate for the first time since 2020. From how likely you are to win a Premium Bond to whether they’re safe, we explore whether Premium Bonds are worth it.

The “prize rate” of Premium Bonds was 4% in September 2023 and rose to 4.65% before falling to 4.4% in March 2024.

“Put simply, the NS&I no longer needs to attract new cash, and the savings bank can now afford to row back on its generous offerings,” said Myron Jobson of Interactive Investor.

“Savers might need to brace themselves for less generous offerings from the NS&I going forwards.”

So, if you’re still considering Premium Bonds as a place to keep your money, we explain everything from your chances of winning the jackpot to how it’s taxed.

In this article, we explain:

• What are Premium Bonds and how do they work?
• How much are Premium Bonds?
• Are Premium Bonds a good investment?
• What are the chances of winning on Premium Bonds?

Read here:

What are Premium Bonds?

Introduced in 1957, Premium Bonds were originally used to encourage British people to save at the end of the Second World War. Back then, owners of Premium Bond accounts would be entered into a monthly draw for the chance to win £1,000.

This is around £20,300 in today’s money.

While savings accounts usually offer a guaranteed interest rate, Premium Bonds allow for the opportunity to win tax-free cash prizes. These prizes can be between £25 and £1 million every month. The annual “prize rate” is currently 4.4%.If you do end up winning one of the larger prizes, then you could take a look at our guide on how to invest £10,000. It’s packed full of investing tips for beginners.

Are Premium Bonds tax-free?

Premium Bonds are tax-free. So, if you’re lucky, you could win a prize and you wouldn’t need to pay tax on it.

That’s why some people see Premium Bonds as an alternative place to keep their money once they’ve utilised their personal savings allowance or reached their capital gains tax threshold.

Read more: What is Omaze and is it legit?

How much are Premium Bonds?

Each Premium Bond is worth £1, and the minimum amount you can purchase is £25. Meanwhile, the maximum is £50,000.

The minimum and maximum number of entries you would get is 25 and 50,000, respectively.

Are Premium Bonds good investments?

Premium Bonds are a gamble rather than a savings or investment account. That’s because while you might win £1 million, you could win nothing.

It’s important to remember, however, that it’s only the interest rate that’s a gamble, and the cash that you put into Premium Bonds is safe and protected.

Read more: How to invest £10,000

What are the chances of winning on Premium Bonds?

The odds of any Premium Bonds winning a prize in a monthly prize draw are one in 21,000. This works out to a “prize rate” of 4.4%.

This means that if you deposit £21,000, you’ll earn a prize of some sort.

To decide whether you would rather use a Premium Bond account or a typical easy-access account, it’s important to think about how much you would earn annually with the easy-access account.

If you use this online Bank of England calculator, you can input how much savings you have, along with the interest rate of an easy-access account you might choose.

For example,if you have savings of £50,000 and choose an easy access account with a 3% interest rate, you could expect to earn around £1,500 each year.

Are Premium Bonds safe?

Premium Bonds are offered by the National Savings and Investments (NS&I) – a government-backed institution which is regulated by the Financial Conduct Authority.

Unlike other banks and building societies, it doesn’t benefit from the FSCS. Instead, if it were to go bust, your money is 100% backed by the treasury.

This also means if you hold other savings accounts with the provider, these are fully backed too and aren’t limited to the £85,000 under the FSCS.

Are old Premium Bonds worth anything?

When you hold Premium Bonds you don’t get an interest rate in the same way that most savings products work; instead they have an average rate of return.

For every £1 bond, the odds of you winning a prize are 21,000 to one, so pretty slim. This translates to a “prize rate” of 4.4% (previously 4.65%).

But there are two points to remember about these calculations:

• You may not win any Premium Bond prizes, in which case even a low-interest rate savings account would have been better
• The more you have in Premium Bonds, the bigger your chances of winning (this is not reflected in the 4.4% prize fund rate, which is just an average for everyone)

What are the odds of winning the Premium Bond jackpot?

If you fancy the £1 million jackpot, of which there are two lucky winners each month, then for every £1 bond you hold, in any one month, you have a one in 59,082,205,208 chance.

The chance of winning the £1 million jackpot over the course of a year (or 12 monthly prize draws) is one in 49,563,028 if you have £100 in Premium Bonds.

If you have £1,000 invested, the odds of winning are one in 4,954,991. And if you have the maximum £50,000 in bonds, your chances increase to one in 96,839.

Each £1 bond has an equal chance of winning. So to boost your chances, the more you buy, the more your chances improve in the monthly prize draw.

So don’t start lingering with any big Premium Bond prize daydreams about property, cars or giving up your job just yet.

If you think you might prefer a regular interest rate: Top savings accounts in 2024.