Are Premium Bonds Worth It in 2025?
How Premium Bonds work
Premium Bonds, issued by National Savings & Investments (NS&I), don’t pay conventional interest.
Each £1 you hold is entered into a monthly prize draw where prizes range from £25 up to £1 million. Winnings are tax-free.
The published prize fund rate in 2025 sits around 4.4%, an average rather than a guaranteed return.
Pros of Premium Bonds
- Government-backed security: Capital is safe and not subject to risk of bank failure.
- Tax-free prizes: Winnings are not subject to income tax, which is useful for higher-rate taxpayers.
- Instant access: Unlike many fixed-rate bonds, you can withdraw funds without penalty.
- Chance to win big: The lottery element appeals to many savers.
Cons of Premium Bonds
- No guaranteed return: Unlike a savings account, you may earn little or nothing over time.
- Average return can lag inflation: The prize fund rate is an average; many small savers will see lower personal returns.
- Better odds for larger balances: Statistically, larger holdings improve your chance of regular wins, so they’re less attractive for small sums.
How they compare in 2025
When interest rates peaked in 2023–24, some traditional savings and fixed-rate ISAs outperformed Premium Bonds.
Today, with the Bank of England base rate lower, instant-access accounts often pay around 2.6% (below inflation), while competitive fixed-rate accounts and Cash ISAs can still offer 4–4.5%.
That means savers seeking predictable growth may get better guaranteed returns outside Premium Bonds.
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Adviser note: Premium Bonds are suitable for savers who value capital security, flexibility, and tax-free prize potential.
If your priority is guaranteed growth or beating inflation, fixed-rate accounts or ISAs may be preferable.
Who should consider Premium Bonds?
They may be appropriate if you’re a higher-rate taxpayer seeking tax-free upside, want complete government security for large sums, or enjoy the low-risk chance of prize money. They’re less suitable if your main aim is consistent, inflation-beating returns.
