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Premium bonds

Premium bonds are still the nation's favourite, but are they worth it? We weigh up the pros and cons of this popular tax-free NS&I savings product. 

In this article
What are premium bonds? How do I buy premium bonds? How much interest do premium bonds pay? How likely am I to win a premium bond prize? Do I have to declare premium bond prizes on a tax return? How can I find out if I've won a premium bond prize each month?
Are old premium bonds ignored in the prize draw? How safe are premium bonds? How do I find lost premium bonds and unclaimed prizes? Can I inherit premium bonds from my parents? How do I cash in premium bonds or close my account? Should I put my savings into premium bonds?

What are premium bonds?

Instead of paying interest, like traditional savings accounts, every premium bond is entered into a monthly prize draw, with winners being selected at random by National Savings & Investments (NS&I). 

You can win tax-free prizes worth £25 to £1m every month, and buy premium bonds on behalf of children. NS&I is backed by the Treasury so 100% of your money is safe.

However, the maximum you can invest is £50,000, and you won't get a guaranteed return or a regular income. Landing a prize is a lottery so you could win nothing at all.

Our video explains how premium bonds work. 

How do I buy premium bonds?

You can buy premium bonds from NS&I over the internet, by phone or through the post.

If you’re a parent, legal guardian or grandparent, you can buy bonds on behalf of your child, grandchild or great-grandchild aged under 16 either online or by phone. 

If you live outside of the UK, you can apply for premium bonds by post and winnings can by paid into an international bank account.

You'll need to send proof of identity and your Tax Identification Number. Check local regulations first though, as not every country allows you to buy and hold premium bonds. 

How much interest do premium bonds pay?

The annual prize fund interest rate rose to 1.4% in December 2017 but premiums bonds don't pay interest in the normal sense.

This is because you only get a return if you win prizes. So, while 'lucky' people might earn 1.4%, or more, the average person will earn less than this, or nothing at all. 

Monthly prizes start at £25 and there are two £1m monthly jackpots. The total prize pool is varies month-by-month - though the number of prizes awarded increased sharply in December.

How likely am I to win a premium bond prize?

The NS&I's computer – Ernie (Electronic Random Number Indicator Equipment) – generates random numbers that are then matched against eligible bond numbers to determine the winners. 

Landing a prize is essentially a lottery, so you could hit the jackpot, or never win a single prize, but the odds of each £1 bond number winning a prize are currently 24,500 to 1.

The graph below shows how likely you are to win a prize over 12 months, comparing odds if you have £100 in premium bonds, up to the maximum of £50,000. 

If you hold £10,000 or more in premium bonds, you're likely to win at least one prize (£25 upwards) during a period of 12 months.

But, if you only bag the smallest prize once, that's the equivalent of just 0.25% interest over the year. And even with odds at 99%, there is no guarantee of winning anything at all.

Do I have to declare premium bond prizes on a tax return?

No. Any winnings are tax-free and aren't counted as part of your taxable income, so you don't have to declare them.

How can I find out if I've won a premium bond prize each month?

Prize winners are normally notified in writing (or in person if they have won the £1m jackpot).

You can check for recent and 'missed' prizes on the NS&I website by entering your bond holder’s number. If you have lost track of old bonds, there is a free tracing service there, too.

Are old premium bonds ignored in the prize draw?

No. All bonds are eligible for each month's draw, regardless of their date of issue (provided you have held them for a full calendar month following the month you bought them). A bond purchased in 1959 won the jackpot in July 2004.

It's true that more recent bonds win more often, but that is because there are more of these in circulation. Premium bond sales soared after the top prize was increased to £1m in 1994.

How safe are premium bonds?

NS&I is backed by the Treasury, so 100% of your original investment is safe, and you can get it back at any time. 

However, you may not win enough in prize money to protect your savings from inflation.

Other investments, such as NS&I index-linked savings certificates, offer a more certain, if fairly low, return – but they're unlikely to make you a millionaire, of course.

How do I find lost premium bonds and unclaimed prizes?

With £54m in unclaimed premium bond prizes, it's worth checking that you haven't missed out on a prize. There's no time limit for claims. NS&I attempts to contact all winners, but can only do so if they have their current contact details.

If you know your holder's number, you can check using the online premium bonds prize checker

If you don't have any documentation, but believe you have some premium bonds, then you can use the NS&I tracing service. You can use the same form to check whether a deceased investor had any premium bonds.

You will need to provide information such as your date of birth, previous addresses and the name of the person who bought the bond.

Alternatively, you can use mylostaccount.org.uk to do a search.

NS&I will never deactivate a premium bond without a customer’s authority. Even if NS&I doesn't communicate with you for years, the premium bond will remain open and will be entered into prize draws. 

Can I inherit premium bonds from my parents?

Premium bonds can't be transferred, but their value does form part of the estate of the deceased.

Executors can claim this from NS&I by completing this claim form or obtained by post from National Savings and Investments, Glasgow G58 1SB. 

How do I cash in premium bonds or close my account?

You can cash in some, or all, of your premium bonds at any time, without penalty. 

If you originally applied for the bonds online or by telephone you can simply log in to your account at www.nsandi.com or call 08085 007 007 to arrange this. 

The oldest bonds will be cashed in first and the money will be paid into your nominated bank account within around three working days. 

You can also make a claim by post using this premium bonds cash in form, with the option to cash in a specific set of your bond numbers if you wish.

It takes around eight working days to process the request and transfer the money into your nominated account.


Should I put my savings into premium bonds?

Premium bonds are hugely popular. Despite the fact that premium bonds don't offer any guarantees, and the odds of winning big are very small, premium bonds remain popular.

Around 21 million people hold a total of £63bn in premium bonds. Here's a regional breakdown: 

Premium bonds offer the thrill of a flutter without the risk of losing your original stake, but they don't offer a guaranteed return so they aren't suitable if you want to generate a reliable income from your savings. 

Prizes are tax-free but so is interest earned from other savings thanks to the personal savings allowance – this allows basic-rate taxpayers to earn £1,000 of interest a year tax-free, while higher-rate taxpayers can earn £500.

Over the years, your money could be eroded by inflation if you don't win regularly, so we wouldn't recommend that you put all of your money into them. It's much better to spread your money across other savings options. 

The Which? Money Compare tables let you search hundreds of savings accounts and cash Isa deals from providers large and small, so that you can find a good home for your nest egg. We also combine this with our unique customer scores that show you how well the providers featured are likely to treat you in the long run.

Many savers are also using high interest current accounts to boost their savings. Our table of the best bank accounts if you always stay in credit lists the top-payers. You could even open multiple high interest bank accounts and move money between them every month to maximise returns.