70 years of premium bonds – are they still worth it?

TV advert: Think of the Cup Final crowd, then treble it. There are 100,000 people here, but three times this number have won prizes from Premium Bonds. That’s 300,000 prize winners. Why don’t you put yourself in the running for a prize? Or buy more Premium Bonds and increase your chances of winning prizes from £25 to £1,000.

James Rowe: That was a 1950s TV advert for Premium Bonds, a savings product that was announced on this day 70 years ago by the then Chancellor of the UK, Harold Macmillan. But after seven decades and more than £40 billion paid out in prizes, are these still a worthwhile element of your savings portfolio? Welcome to this episode of Which? Money.

It’s James in the Which? studio this week and alongside me, I’ve got Which? researcher Holly Lanyon. Holly, hello.

Holly Lanyon: Hi James.

James Rowe: How are you?

Holly Lanyon: Yeah, all good thanks.

James Rowe: Very good. I’m quite excited about this episode because we’re going to be talking about Premium Bonds, which for the wider public are very popular, but more so for Which? members. Which? members love Premium Bonds, don't they?

Holly Lanyon: Absolutely. One in three people in the UK hold Premium Bonds, but when we surveyed Which? members, 80% of people in our survey said they either currently hold them or have held them in the past, which is a quite staggering stat.

James Rowe: Which is really impressive, especially compared to other savings products. Stocks and shares ISAs are on the rise, but it’s a very minuscule amount of people who actually have one. So for a savings product like this that has been going for seven decades, it's impressive that they still hold this place in people’s hearts, right?

Holly Lanyon: Yeah, and that was absolutely what we wanted to dig into in the piece – why do people love them so much? Why do people stick with them? And it was quite surprising some of the reasons that we got to.

James Rowe: And you’ve been writing about it for the latest issue of Which? magazine, which I have here and it is the cover story as well, which looks delightful. But you also did this for this podcast and earlier in the year you went to NS&I HQ as well, didn’t you, to find out a bit more?

Holly Lanyon: Yeah, it was great to go to NS&I. They brought up loads of materials from their archive, so we got to see some of the footage that you wouldn’t normally see online or in previous articles to get a real sense of the history of Premium Bonds and how they came about.

James Rowe: And we’ll be delving into that trip that you had and hearing from some people who work at NS&I and getting a flavour of that archive a little later on. But do you want to just kick off with a bit of a history of Premium Bonds? Because I should say, I don’t have Premium Bonds, never had them, so to me they are a bit of an alien subject. I appreciate I might be in the minority for Which? members and people listening and tuning in. But what’s the history? So they’re 70 years old – why were they actually launched in the first place? What was the story behind them?

Holly Lanyon: So they were first announced as a new savings product 70 years ago today in the budget speech by Harold Macmillan. And they were launched to really encourage more people to save, to help curb inflation at the time as well. And the idea was that rather than being paid interest like you would on a standard savings account, your Premium Bond – for each bond that you have – a number would be entered into a raffle and you’d have the chance to win prizes.

James Rowe: How does it work? Because it feels like it’s almost a bit of a lottery whether you win or not. Is it officially a lottery? How does it work?

Holly Lanyon: It’s interesting. There was a lot of pushback at the time, actually. The then Shadow Chancellor Harold Wilson very famously called it a "squalid raffle" and that reflected attitudes towards gambling at the time. So unlike a lottery, you don’t lose your stake. For every £1 Premium Bond that you have, you get a unique bond number and that’s entered into a lottery, a monthly draw where you can win prizes. Currently, the prizes range from £25 to two £1 million jackpots prizes every month. But you’re not risking the money that you invest in Premium Bonds. That’s safe and you can withdraw it at any time, but rather than getting guaranteed interest like you would on a savings account, you have the chance to win potentially a much bigger prize.

James Rowe: And that’s the draw, isn't it, for a lot of people – that chance of winning big. Compared to a normal savings account, you know what you’re going to get every month, but for Premium Bonds, the draw is that you might win very big.

Holly Lanyon: Yeah, that’s the fun. When we spoke to members, the fun, the slight element of thrill and chance – that came through definitely as a big reason why people hold them. I think one person said, "It’s a gamble with the interest that I would have earned in a savings account and that’s a risk that I’m happy to take." So it’s this funny mix. It’s a risk but with that element of safety. It’s not quite like placing a bet or entering the lottery because you don’t lose the money. But you have to be happy foregoing the interest that you would have earned had you put it in a savings account. But for lots of people, they’re happy to, and there’s definitely a sense of excitement around the draw. I heard from one person who’s in an unofficial "midnight club" with her friends where they text as soon as the prize results come available. So that excitement, that chance is a huge part of it and why they’re so popular.

James Rowe: And tell me about Tim. Tim’s a Which? member who loves Premium Bonds.

Holly Lanyon: Yeah, so this was another theme that came through to this question of why do so many people stick with them. I have to get my stats out...

James Rowe: Go for it. We always love the stats. We always love numbers. Let’s get them accurate. What have we got?

Holly Lanyon: So we asked Which? members if they have or have held Premium Bonds in the past and a quarter said they’ve held them continuously for more than 60 years. So for some of those people, that’s stretching back more or less to when they were first launched. And Tim was one of those people. He was bought some by his mum in 1958, so a couple of years after they were launched. He has £14 worth and has held them ever since. He still has the original paper bonds and has never won anything. When we ran the numbers – we ran the numbers based on the odds at the time of writing – it’s not that surprising that he hasn’t won anything for a holding of that size. But he said regardless of the odds, there’s a real sentimental attachment to them because they were bought for him by his mum. Both his parents have since died and he said, "I wouldn’t cash these in now, they’re a link to the past, they’re a link to my family." And lots of people in the survey said, "Oh yeah, I was bought them as a child, I was bought them by a family member and I’ve never cashed them in." That was the part that surprised me maybe the most about the research – that people have this savings product that they have such an emotional connection to. Often it doesn’t seem totally rational when you look at the odds of winning based on a holding like Tim has. But there’s definitely something in that emotional aspect which I just found interesting.

James Rowe: Well, as we said before, a couple of months ago you did go to NS&I HQ. NS&I being the company who run Premium Bonds, run the draws. And at the time you spoke to Andrew Westhead. He’s the retail director at NS&I and you asked him why he thinks so many of us love Premium Bonds. Let’s have a listen.

Andrew Westhead: It’s a really good question. One in three of the UK population have Premium Bonds, which is a really exciting stat. For me, it’s the excitement, the emotion. It really depends – for some people it is because you’ve always had them. So you may have been bought them at birth and there’s a real family link, which I think is really nice. That wasn’t how I got into it – I got into it because I worked in the industry and I saw the benefit – but I stayed because I find it quite exciting. How often do I check my normal savings accounts versus how interested am I in my Premium Bonds draws? So I think there’s a real emotion to them which makes them quite special.

Holly Lanyon: That fun side is something that really came through in the research that we’ve done with members. Surprisingly heard from people who are in WhatsApp groups where they text at midnight. Have you got any other surprising anecdotes about Premium Bond holders and the fun they have with them?

Andrew Westhead: I hear lots of unofficial midnight clubs and Facebook groups. You’ll see sometimes if there are ever any stories that aren’t overly positive about Premium Bonds, the comment section goes crazy with really staunch Premium Bond fans to remind everybody of all the benefits. But it really is quite unique. The thing I quite like is – I mean you’ll see on the table here there’s some really interesting certificates from 50 and 60 years ago – but what I think is quite cool right now is, I don’t know if you guys have got Alexas, but you can check if you’ve won your Premium Bonds because there’s an Alexa skill that you can set up. I quite like that because you can even do it by voice. I think it's modernising what is something that’s so traditional.

Holly Lanyon: We heard from lots of members who said the reason I hold them is that my parents gave them to me as a child. It’s true for me, I got them from my grandad, still got them, topped them up as I got older. Can you tell us anything about the trends in gifting or have you seen any changes in the way that people gift Premium Bonds over the years?

Andrew Westhead: Yeah, absolutely. Because I wasn’t one of those lucky children that were given them, I used to be a bit jealous. There was a bit of an aura of "What are these Premium Bonds and why have my friends got some and I haven’t?" When you get on the inside, it’s fascinating. And it’s pretty stable at the moment. We have over 40 million bonds a year that are purchased as gifts by grandparents or third parties and that’s been pretty consistent. I’ve gone back 10 years and it’s been pretty much the same level. So fairly stable. It’s not going anywhere.

Holly Lanyon: So another thing I wanted to pick up on is why people stay with Premium Bonds. When we asked Which? members, of those who have them or have held them in the past, 60% of those people have never cashed them in and over a quarter have held them for over 60 years. Are there any other important reasons why people stick with Premium Bonds as a savings product?

Andrew Westhead: Wow. I didn’t know that stat, so that stat is really helpful to know. Shows the loyalty of our customers, which is brilliant and something we don’t take for granted. Again, I know it sounds simplistic, but I think that there is an emotional attachment to them. My wife was bought them when she was born. I know that if she was going to take money out, it would be, "Oh, but I don’t want to take the ones back from the 80s, it would need to be the ones we bought last year or 10 years ago." So I think there’s definitely that connotation to a link to a relationship or to a memory. But we watched as the UK went through the cost-of-living crisis over the past few years. We saw savings accounts behave differently. And actually, people really do go to their Premium Bonds as a last resort. They will always go to other savings accounts first. We’d probably have to get into the human science and psychology of why that is. The assumption is it’s because they’re just slightly more cherished – and because they still retain that hope and fun and that little bit more excitement than we do lots of other savings accounts. They’re all wonderful, but they’re maybe not as exciting as Premium Bonds.

James Rowe: Holly, that is fascinating. You have Premium Bonds yourself, don’t you? Why do you like them? Why do you have them?

Holly Lanyon: Yeah, I’m one of those classic cases I was just talking about. I think I was bought some by my grandad when I was a kid. Never thought of cashing them in.

James Rowe: Is it the thrill of "I might win"?

Holly Lanyon: It’s the fun. I joke with one of my colleagues here on prize draw day, we do the same, share news. So it’s all those things we were just talking about.

James Rowe: And you touched on this before about the chance of winning. Remind us of those odds of how likely you are to actually win something in a draw.

Holly Lanyon: There’s two important numbers. There’s the odds of a £1 bond winning a prize per monthly draw – it has just changed so it’s currently 23,000 to 1 as of April. And then there’s also the annual prize fund rate. The current annual prize fund rate is 3.3% and that’s what funds the monthly prize draw.

James Rowe: Did members know about these odds?

Holly Lanyon: So we asked them at the time of writing. People who currently hold Premium Bonds – do you know the odds of a £1 bond winning a prize? And only one in six correctly identified it. It’s not a number that’s front of people’s minds or particularly well-understood exactly how the prize draw works and exactly how the odds of winning stack up.

James Rowe: I guess it is a bit similar to any other – I know this is not a lottery – but compared to other lotteries, you play with the chance of winning, you’re not necessarily looking at the odds, are you?

Holly Lanyon: Yeah, exactly. If you’re someone who plays the lottery, if they know off the top of their head the chances, I imagine similarly not. I didn’t know the current odds before I started researching this piece.

James Rowe: Exactly, which puts it into perspective. And as you say, it was only one in six of the Which? members you spoke to knew what those odds were. You did actually put that stat to Andrew and asked him if he was surprised that the number of people who knew about the odds was so low.

Andrew Westhead: Does it surprise me? Probably a little bit. I think that the headline rate, which is the percentage rate, the prize fund rate, I think that’s probably more well-known. If you can imagine that we have a plan, you have a set number of millionaires, 100,000 winners, 1,000 winners, etc., every month. So we have to keep the volumes consistent. As the market changes, the rate changes. So every now and then we’ll need to amend the odds. And they have been much higher than 22,000 to 1, as you can imagine. If you went back five, six years and the prize fund rate was 1%, the odds were significantly higher. So the odds are there to keep that chance, the number of prizes, the volume of prizes at a level that really rewards everybody and not just the large winners, and also not just the smaller winners – making it the balance right for the prize fund.

Holly Lanyon: There’s another thing of how Premium Bonds work and that’s the investment limit. I can see from your figures that the number of people who are maxing out the maximum amount of Premium Bonds that you can hold is on the rise. And when we spoke to Which? members, we found out they’re really popular partly because they’re a tax-free savings vehicle. So I was wondering if you could tell us how often is that investment limit reviewed? Is it something that’s likely to change in the future? And then a secondary question – with changes to the cash ISA limit coming in 2027, are you expecting to see more and more people putting their money into Premium Bonds?

Andrew Westhead: Great questions. Let me try and I’ll talk about the prize fund limit first. As you said, there is a very high number of people that max that out, which is fantastic. And there are others that will start with £50 and work their way up. And we want to reward both, award both, and encourage both because there’s as much the habit of saving as well as parking your savings with your savings provider. So as we sit today, we’ve got no plans to change the £50,000 limit. It’s reviewed constantly. I probably get dozens of requests a month to say, "Can we increase that?" And again, it’s about making sure that we’ve got our balance right and the integrity of the spread of bondholders. If I go right back to the original purpose of Premium Bonds, they were introduced to provide accessible savings for everyday savers. So I need to make sure that the appeal and then the actual chance to win is fair. If we put that rate up higher and higher, then you’ll get a slightly more concentrated pot of people that have a bigger chance. Second question was about ISA changes in 2027. And I think our current assumptions is yes, we would probably expect that for those savers that don’t want to go down the investment arm – and obviously there’s a big push to encourage longer-term investments – for those that want to stay in cash and maximise their ISA limit, then Premium Bonds is an obvious tax-free option. And when you do take the prize fund rate and you add on someone’s tax rate, it is a really attractive offer. So I would expect them to be even more popular.

James Rowe: Okay, so let’s get into a bit more of the history of Premium Bonds given this big anniversary that they’re celebrating. You got to see into a lot of the archive when you went to NS&I HQ. I bet that was quite fun.

Holly Lanyon: Yeah, it was really fun. I think what struck me most was seeing how manual a lot of these processes were. Some of the images that I found the most fascinating were of people manually identifying bondholders after the draw had been to match them with the winning prize number. And that process just took hours and hours and required so many people.

James Rowe: Because there was certainly no computer to do this back in the day, right?

Holly Lanyon: And that’s what’s really fascinating about Premium Bonds. I think also part of their hold in people’s imagination is this computing aspect. So it was in the very early days of modern computing that Premium Bonds were announced and the technology that powered the draw – that being possible to generate that amount of random numbers – I think was what was a precursor for Premium Bonds becoming about. Shortly after the first iteration of ERNIE was invented...

James Rowe: You’ll have to tell me who ERNIE is. ERNIE’s not a person, right?

Holly Lanyon: No. So ERNIE is the Electronic Random Number Indicator Equipment. So that was invented by a team led by Tommy Flowers, who worked at Bletchley Park on the codebreaker Colossus. And so he invented the first iteration of ERNIE in 1956 and then very shortly afterwards when Harold Macmillan announced Premium Bonds. And I think in the budget speech even, he says the technical logistical challenge of generating this amount of random numbers and holding this amount of bonds is a huge part of it. And you can chart the history of modern computing through Premium Bonds and ERNIES and how the technology’s adapted to that ever-growing number of bondholders.

James Rowe: It’s almost like a success story of Great British culture in a way. They wanted to do something and they had to put all this manpower and man-hours in to actually get it off the ground and make it happen, despite not having much technology to use at the time, right?

Holly Lanyon: Yeah, it was really quite a pioneering computing project. I really enjoyed learning a little bit more about the development of that technology. It was fascinating.

James Rowe: And readers of the money magazine will have seen some brilliant archive pictures in the magazine piece itself. And you got to see a lot more when you went there. In fact, let’s hear a little bit more about what happened when you got an inside into the archive at NS&I HQ.

Holly Lanyon: So we’ve got this big red book in front of us. What have we got here, Andy?

Andrew Westhead: So this predates even Premium Bonds. And the picture that really catches my eye is the Queen Mother in the National Savings and Investment office and what she’s holding in her hand was then Princess Elizabeth’s savings card or as we know her, Queen Elizabeth II. So yes, royal customers and it was just really fascinating to see how it all started.

Holly Lanyon: And then we’ve got all these photos in front of us here. Obviously today ERNIE is, as I understand it, a quantum chip, but has had many iterations before that. Can you tell us a little bit about what we’re looking at and how the prize draw worked over the years?

Andrew Westhead: Absolutely. What’s fascinating is just how manual these pictures depict the experience. Even then the scale was a very popular product. There were lots of new bonds and sales being done and here we can see colleagues really sorting through and manually collecting prize winnings and capturing them. So you can really see the scale and hundreds and hundreds of people that are working in these offices to do the draw. As you can imagine, this is now all completely automated and the draw takes a matter of hours, whereas it used to take weeks to do.

Holly Lanyon: And some of these photos of ERNIE are just fantastic. Really stylised and really of their era.

Andrew Westhead: I mean I think this is really cool. This one we’re looking at is, I believe it’s early 70s – yes, 72. And you can clearly see the space race had been and everything was very futuristic and I thought the branding was excellent. ERNIE looks about 50 feet long at this point, so really of the era.

James Rowe: Fascinating as ever, that clip there. I do want to hear a bit more about ERNIE and at the time you also spoke to Sarah Brown, who is a colleague of Andrew’s. And this is where you found out that ERNIE has a special place in some people’s hearts.

Holly Lanyon: So now I’m here with Sarah Brown who also works at NS&I. Sarah, can you talk us through some of these fascinating pieces we’ve got?

Sarah Brown: So we’ve got here a wonderful black and white photo which shows Harold Macmillan in the time when he was Chancellor before he became Prime Minister. And he was responsible for launching Premium Bonds. And he’s holding a £1 bond in his hand when it launched in November 1956.

Holly Lanyon: And what have we got here?

Sarah Brown: So we’ve got here a few photos of ERNIE over the years, including celebration of 40 years of Premium Bonds in 1997 with the most enormous cake. Dread to think how much sugar is in there, the icing all over it. And then we’ve also got a photo of the scientist and statistician that was around at the time, Heinz Wolff.

Holly Lanyon: So is that Heinz pressing the button to start the draw, do you know?

Sarah Brown: It possibly could be him pressing to start the draw. It’s such an old computer looking at it, sort of a big screen TV type monitor from most probably 1960s or 1970s.

Holly Lanyon: It’s really remarkable isn’t it to think now that ERNIE’s gone from this – well it looks like it takes up almost an entire room – to something that you would just telling me is the size of your little fingernail?

Sarah Brown: Yes, that’s it. I think it was in 2019 we brought along ERNIE 5 and that uses quantum technology and it’s all in one little processor chip which is literally the size of your pinky nail.

Holly Lanyon: Now this is something I wasn't expecting to see today. We’ve got some birthday cards here. Can you tell us what’s going on?

Sarah Brown: ERNIE was very, very popular and people put personality to ERNIE and they would regularly send him Valentine’s cards, birthday cards, Christmas cards. And if I look at some of them, it would be say "You are best investment of all", "Happy 40th birthday", "Thank you ERNIE. It is leap year, I’m still a spinster" which I think is one of my favourites. And then we also had a card that came in with an interesting-looking character that maybe not as romantic as you would have imagined, but for Valentine’s Day and to show you my high regard. And in it, it then says "I sold my stocks and cashed my bonds and purchased you this card. Happy Valentine’s to ERNIE and staff."

James Rowe: Holly, fascinating that.

Holly Lanyon: Yeah, I think that’s the other really incredible thing about ERNIE. Not only was it this pioneering computing project but he’s kind of – he, see I’m guilty of it – this computer has been anthropomorphised. And there was also, I think in one of the archive photos that we saw, a little robot companion called Eric who accompanied ERNIE. NS&I I think just really leaned into the fun with that and really stylised the different iterations that you can see in the mag piece. The different eras of ERNIE are really of their time. I think one of them, ERNIE 2, was designed to look like a set of a James Bond film. So a really interesting mix of cutting-edge technology and quite playful branding around this technology.

James Rowe: And a real glimpse I guess into, as I said before, British culture and just how significant Premium Bonds have been in our history. The amount of different celebrities who have been involved in some of the draws and that sort of thing. It has been a real significant moment over these last 70 years.

Holly Lanyon: Yeah, definitely. I think in some of the early draws, Sir Bruce Forsyth was involved. There was a photo of Dame Judi Dench – we couldn’t confirm whether or not that was her initiating a draw or speaking at an event – but a huge range of celebrities got involved in promoting and celebrating Premium Bonds.

James Rowe: A huge amount of gravitas that they’ve had over the last seven decades. Not only though are we reporting on this, the 70th anniversary for Premium Bonds, but NS&I recently has also been in the headlines for some of the wrong reasons as well. We should mention that, shouldn’t we?

Holly Lanyon: Yes, so it has recently come to light that there were some serious operational failures in the way that bereavement cases were handled. Specifically, in some cases NS&I failed to identify all of the savings products or Premium Bonds that customers held, which meant some people – I think about 37,500 cases estimated to be affected – weren’t necessarily paid out all of the money that the estate was owed. And I think they estimate about £476 million may be affected. As I understand it, we’ll find out more in May for those customers who have been affected how they’ll be contacted and how they’ll be compensated. But I think the tracing issues have now been fixed and new measures have been introduced hopefully to stop something like this happening again. But absolutely, the chief executive Dax Harkins has resigned over this and it has been a pretty big story.

James Rowe: And just to give NS&I a sentence or two on this, they have said that they apologise for these errors, saying it is extremely sorry and is working to ensure everyone affected receives what they are owed. And as you said, they should find out in May for anybody who has been affected. But on the more positive side and looking into the future, what is the future for Premium Bonds? What do you reckon?

Holly Lanyon: One thing that came up in the research, especially with Which? members, we asked Which? members why they love Premium Bonds and the fact that prizes are tax-free was a big draw. So one thing I think with changes to the cash ISA rules coming into effect from April 2027, NS&I are expecting that for those people who want to save cash and not necessarily invest, Premium Bonds will become even more popular. Something that’s happened over recent years – quite a big increase in the number of people maxing out the amount of Premium Bonds you can hold. So at the moment the investment limit is £50,000 and over recent years the amount of people hitting that limit has really increased. We put that to NS&I and they were very clear that that limit won’t change anytime soon, and for really good reason because the more that you up the investment limit, basically the more you skew the draw towards richer savers. Every £1 bond has an equal chance of winning, but obviously the more you hold, the far more chances you have to win. So no sign necessarily that they’re becoming less popular. And I guess if as many people continue to hold this place in their heart for them – if they get passed down like they were for you as you mentioned before – people might just hold onto them thinking, "Well, I’ve got a savings account, I’ve got an ISA, whatever, but I’ll just keep the Premium Bonds just in case," right?

Holly Lanyon: Yeah, and that’s the kind of overall theme that came out of the research. They are a savings product but people just treat them a little bit differently. There’s that fun side of it, there’s that emotional tie to it, and also for a lot of people the role that they might play in their savings accounts. Most of the people I think – two-thirds of the people that we spoke to said "I’ve got less than 10% invested" because obviously there is that chance. You could win big, but you really could win nothing at all, especially based on a moderate holding the chances are a lot of the time you won’t win. So they’re slightly unique and that’s kind of reflected in the way people put their money in them and how they hold Premium Bonds.

James Rowe: Lovely stuff. And maybe it’s inspired me to at least consider them because I’ve just now been drawn to the idea of "I could win big". I might not win anything, but just the idea of winning big is kind of – it is a draw for me now that we’ve had this conversation.

Holly Lanyon: Well, there’s a useful chart in the mag if you really want to understand what your chances are of winning based on a different holding. Check out the mag.

James Rowe: I will indeed. And of course Which? Money members will already have this magazine on their doorstep. If you are not already a Which? Money member, there is a link in the show notes for you to sign up. But for now, Holly, thanks very much.

Holly Lanyon: Thanks so much James.