Premium Bonds savers warned as major savings limit change ‘looming’ | Personal Finance | Finance
You can win big prizes in the Premium Bonds monthly draw (Image: Getty)
Premium Bonds savers who have not won any prizes in a while may be wondering if now is the time to cash in their Bonds. Now may be a good time to think about this with major changes coming up.
You can win some big prizes in the monthly prize draw, such as for £50,000 or £100,000, or even a £1million jackpot. But the reality is it’s all down to luck and you can go many months or even years or decades without winning anything.
The prize fund rate for the scheme is currently 3.6 percent, after provider NS&I slashed the rate three times in 2025. The odds of each £1 Bond winning are currently 22,000 to one. Even if you do win a prize, the vast majority of them are for small amounts such as £25 or £50, and this may not be enough to beat the interest earnings or investment growth you could be getting elsewhere.
Finance experts have shared their verdict on whether or not Premium Bonds remain a good savings options, or if you should move your savings elsewhere. Kate Steere, money expert at the personal finance comparison site Finder, said: “For most Brits, opting to put their cash savings into Premium Bonds would be a mistake.
“With interest rates on a downward trajectory and a drop in the cash ISA allowance looming, Premium Bonds are seen as the ‘safe’ option. But while they offer security and shelter from the taxman, you could end up earning absolutely nothing. With inflation holding firm, that simply means the value of your cash savings is being slowly eroded.”
Chancellor Rachel Reeves announced in the Autumn Budget 2025 that the ISA allowance of £20,000 would be reduced so you can only deposit up to £12,000 of the allowance into cash ISAs, from April 2027. The remaining £8,000 has to be used for stocks and shares accounts.
Ms Steere said cash ISAs typically provide better returns than Premium Bonds. She said: “Cash ISAs remain the better choice for savers, particularly while the allowance stays at £20,000 for the next tax year. Savings apps like Moneybox and Plum, for example, are currently offering inflation-beating boosted rates for new customers – 4.39 percent and 4.36 percent respectively.”
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Will Stevens, partner at financial planning group Killik & Co, said the Premium Bonds have long been popular with people who have maxed out their ISA allowances or those looking for short-term investment options. He explained: “They offer two compelling features: a safe store of value, given that they are short-term debt backed by the UK Government, and the variable tax-free reward potential.
“Given this, it can make a great alternative to holding cash at the bank if you are not receiving a competitive interest rate from your bank, or if you are in excess of the financial services compensation scheme (FSCS) limit of £120,000 per banking institution.”
More reliable returns
But he added a word of caution that your sucess with Premium Bonds can vary widely. He said: “The rate offered should be taken with a pinch of salt and more reliable returns can be found in other investments, including other Government-backed debt such as short-dated low-coupon gilts. These also benefit from being largely tax-free on the basis of being exempt from capital gains tax under qualifying bond rules.”
He also said people wanting to build up their savings over the long term should look to investing. Mr Stevens said: “Individuals should be considering investing in more growth focussed options. If you do not need the cash for the next five years, then Premium Bonds or Government debt are unlikely to be the best asset class to be invested.”
Helen Morrissey, head of Retirement Analysis at savings and investments provider Hargreaves Lansdown, said people can have a sentimental attachment to their Premium Bonds, which could mean they miss out on better returns elsewhere. She said: “Premium Bonds hold a special place in people’s hearts and the potential to win big is a powerful incentive for people to use them.
“However, given the extremely small chance you have of winning a life changing tax-free sum you should consider whether you can be making more from your money elsewhere. It’s well worth looking at the wider savings market to see what deals are available; you can still find competitive deals from online banks and saving platforms.”
She said one more reliable way to build up savings for a child would be with a Junior ISA. The expert said: “Growth and income are tax free, like with Premium Bonds, but if you invest the money for five to 10 years or more they have real growth potential, and stand a much better chance of growing notably faster than inflation.”
Premium Bonds for pensioners?
Another question is whether older people should hold on to their Bonds heading into retirement. Mr Stevens said: “For those approaching retirement, there are more effective ways to store cash in the short-term, but Premium Bonds can form part of a larger investment portfolio.
“Once changes to the Cash ISA allowances come into force in April, people will likely seek out other tax-effective options such as Premium Bonds.”
Ms Morrissey also said older savers may want to diversify where they hold their savings. She said: “Retirees will also need to think about how to make the most of their money over a long time period, taking into account inflation.
“With this in mind, they are likely to get better interest rates from their savings by looking across the market and investments will also play an important role in preserving purchasing power. Premium Bonds have the benefit of being fully backed by the Treasury so will be seen as a safe haven, though it’s worth saying the FSCS has recently increased its limit to £120,000 per person per institution.”
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