If you’re choosing between Premium Bonds and a savings account this year, you’re really choosing between luck-based, tax-free prizes and guaranteed, taxable interest (unless you use an ISA). The right answer depends on your tax band, how much cash you hold, and whether you value certainty over the small chance of a bigger win.
As of today, Premium Bonds’ prize fund rate is 3.60% and each £1 bond has 22,000-to-1 odds of a prize in the monthly draw. Top easy-access savings hover around 4.3%–4.8% AER, and easy-access Cash ISAs are around up to ~4.4% (all variable and subject to change). (NS&I Corporate)
Before we dive in, if you want personalised numbers (expected prizes, chance of any win each month/year, when you might reach £50k), try the Premium Bonds Calculator while you read.
How they pay you (and what’s guaranteed)
Premium Bonds (NS&I)
- Your capital is fully backed by HM Treasury and can be withdrawn. You don’t earn interest; instead, each £1 bond is entered into a monthly prize draw. The average outcome across all holders is anchored to the prize fund rate, but your return can be higher or lower—sometimes much lower. Prizes are tax-free and the current odds per £1 are 22,000-to-1. (NS&I)
Savings accounts
- Pay a published AER. With easy-access you can withdraw at will; with fixed terms you lock your rate for a period. Interest outside a Cash ISA is taxable above your Personal Savings Allowance (PSA): £1,000 (basic-rate), £500 (higher-rate), and £0 (additional-rate). (YBS)
Cash ISAs
- Interest is tax-free and uses your £20,000 annual ISA allowance (2025/26). If you take money out of a flexible ISA, you can usually put it back in the same tax year without losing allowance. (GOV.UK)
The headline rates today
- Premium Bonds prize fund rate: 3.60% (since the August 2025 draw); odds 22,000-to-1 per £1 remain unchanged. (NS&I Corporate)
- Easy-access savings: best-buys around 4.3%–4.8% AER. (MoneySavingExpert.com)
- Easy-access Cash ISAs: up to ~4.4% AER at the top end (provider-dependent). (MoneySavingExpert.com)
Rates move; consider this a snapshot, not a promise.
Which is better for you? A practical framework
1) What’s your tax situation?
If you’re additional-rate (PSA = £0) or a higher-rate taxpayer already using your PSA, Premium Bonds’ tax-free prizes become more attractive relative to a taxable easy-access account paying the same headline rate. Meanwhile, a Cash ISA gives guaranteed, tax-free interest but uses your limited ISA allowance—value you might prefer to save for a Stocks & Shares ISA. (YBS)
2) Do you want certainty or don’t mind variance?
Savings accounts (and Cash ISAs) pay what they say. Premium Bonds could pay more or less than the 3.60% average; in any given month you may win nothing. If small, steady interest motivates you, a savings account wins on behaviour. If you like the “prize” element and can tolerate streaks of no wins, Premium Bonds can be a better emotional fit. (NS&I Corporate)
3) How much cash are we talking about?
At small balances, the monthly chance of any win is low; at larger balances the ride smooths out. If you’re near the £50,000 cap, you’ll see frequent small prizes—still with randomness. If you need guaranteed returns on a small pot, savings often look better. For help judging “how big is big,” see Premium Bonds Odds Explained.
4) Do you need your ISA allowance for something else?
Premium Bonds don’t touch your ISA allowance. Using a Cash ISA for cash may crowd out contributions you’d rather put into a Stocks & Shares ISA for long-term growth. Your call depends on your broader plan. (GOV.UK)
Side-by-side at a glance
| Feature | Premium Bonds | Easy-Access Savings | Easy-Access Cash ISA |
|---|---|---|---|
| Return type | Prize draw (variable) | Interest (variable) | Interest (variable) |
| Current headline (indicative) | Prize fund 3.60% | ~4.3%–4.8% AER | up to ~4.4% AER |
| Tax | Prizes tax-free | Taxable above PSA | Tax-free |
| Uses ISA allowance? | No | No | Yes (counts toward £20k) |
| Access | Withdrawable | Withdrawable | Withdrawable (provider rules vary) |
| Capital safety | HM Treasury-backed | FSCS (provider-dependent) | FSCS (provider-dependent) |
Sources for rates and rules as cited above. (NS&I Corporate)
Worked examples (quick and realistic)
A) Higher-rate taxpayer with £25,000 in cash
- Savings (4.5% AER): £1,125 gross interest. After using a £500 PSA, the remaining £625 is taxed at 40% → £375 tax, £750 net interest.
- Premium Bonds (3.60% prize fund): expected outcome around £900 on average across all holders, but your personal outcome may be higher or lower; prizes are tax-free.
- Cash ISA (4.2% AER): ~£1,050 interest, tax-free, but uses £25k of your £20k p.a. allowance (you’d need two tax years to shelter the full amount). (NS&I Corporate)
B) Additional-rate taxpayer with £10,000
- PSA is £0; all non-ISA interest is taxed at 45%. A 4.5% easy-access account yields £450 gross, £247.50 tax, £202.50 net.
- Premium Bonds’ tax-free prize potential could be competitive here, especially if you like the “prize” element. A Cash ISA at ~4.3% would pay ~£430, tax-free, and is guaranteed. (YBS)
These are illustrations; plug your numbers and prize-rate assumptions into the Premium Bonds Calculator for a tailored view.
When Premium Bonds tend to look better
- You’re in a higher or additional tax band, your PSA is used or zero, and you want tax-free upside without tying up ISA allowance. (YBS)
- You value capital safety + quick access, and you’re okay with variance.
- You enjoy the prize element, and your balance is large enough that the ride doesn’t feel painfully streaky (see How Much Do You Need to Win Big? for thresholds).
When savings accounts (or Cash ISAs) tend to win
- You need predictable income and dislike dry months.
- You’re on the basic rate with PSA headroom—your taxable interest may be effectively tax-free anyway. (YBS)
- You want the best net rate today and don’t care about prizes.
- You’re happy to use ISA allowance to lock in tax-free interest (but remember it’s a scarce resource). (GOV.UK)
A sensible middle path
Plenty of people split their cash:
- Core in the best easy-access or Cash ISA for certainty.
- A satellite amount in Premium Bonds for tax-free prizes and a bit of fun.
This keeps your guaranteed interest flowing while giving you a shot at occasional prize bumps.
Keep an eye on moving parts
- Prize fund rate & odds: currently 3.60% and 22,000-to-1 per £1; NS&I tweaks these from time to time. (NS&I Corporate)
- Savings/ISA rates: best-buys move with banks and the BoE; check comparison sources before you decide. (MoneySavingExpert.com)
- Allowances: PSA bands and the £20,000 ISA allowance frame the tax maths. (YBS)
If you’d like the probability side in plain English, read Premium Bonds Odds Explained, or browse every guide in the Premium Bond hub.
This guide is educational, not financial advice. Rates and rules change—always check NS&I and current best-buy tables before acting.
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