NS&I to cut Premium Bond prize rate to 3.6% from August – are they still worth it?

This is the third cut to the prize-rate this year after the it was cut to 4% for the January draw and to 3.8% for the April draw. But while the distribution of prizes is changing, the odds of winning will remain the same at 22,000 to 1.

It's important to bear in mind that most people with typical luck won't get 3.6%, even with the maximum £50,000 invested. The reason behind this is quite complex – see below for our brief breakdown, or check out our Premium Bonds guide for a full explanation.

The rate cut makes Premium Bonds even easier to beat elsewhere

For most savers with average luck, accounts that pay interest will now be even more likely to beat Premium Bonds. This is because savings interest is a guaranteed return – so if you get today's top easy-access rate of 4.75% (or 4.92% if you've not yet used up your ISA allowance), you'd get £47.50 (or £49.20) in interest a year for every £1,000 saved.

Though this interest rate can go up and down over time, you know exactly what you'll earn at any given point – so it still provides more certainty than Premium Bonds, where many saving the same £1,000 would win nothing.

Many people often think: "I'm likely to get the prize rate (or thereabouts) – and there's a small chance of winning a million", but this isn't correct. You're actually likely to get quite a lot less than the new and current prize rates of 3.6% and 3.8%, and there's a negligible chance of winning a million.

If you know and accept this, then investing in Premium Bonds isn't a bad plan. Otherwise, see our regularly updated Top savings guide for the latest deals.

Premium Bond prizes are tax-free – though cash ISAs will likely win for most

With normal savings, while interest is paid tax-free, it is taxable as income. However, each tax year you get a personal savings allowance (PSA) that means:

• Basic 20% rate taxpayers don't pay tax on the first £1,000 a year of interest.

• Higher 40% rate taxpayers don't pay tax on the first £500 a year of interest.

• Top 45% rate taxpayers pay tax on all interest.

With today's top standard (non-ISA) easy-access rate of 4.75%, it takes just over £21,050 in savings for basic-rate taxpayers to exceed the allowance and start paying tax on the interest (and just over £10,525 for higher-rate taxpayers).

Premium Bond prizes aren't taxed, which means that if you've larger savings in cash, and have maxed out your £20,000 a year ISA allowance and earn enough interest to exceed your PSA, Premium Bonds are probably a decent choice... if you can accept the random nature of the 'interest'.

For everyone else, cash ISAs – savings accounts you never pay tax on – are still likely to be the better choice. The top easy-access cash ISA rate is currently 4.92%, higher than the standard non-ISA rate and offering a guaranteed return that's substantially higher than the current Premium Bond prize-fund rate of 3.8% (which you need to be lucky to get).

A brief breakdown of the complex maths behind Premium Bonds

Premium Bonds are essentially a savings account you can put money into, where instead of being paid interest, tax-free prizes are awarded in a monthly draw. Prizes range from £25 to £1 million.

The nearest thing Premium Bonds have to an interest rate is their annual prize-fund rate – this is what's decreasing from 3.8% to 3.6% in August. It's a benchmark of the "average" return you'll get for your money – though in reality, there's no guarantee you'll win anything at all.

What it really means is that for every £100 invested in Premium Bonds, £3.80 (soon to be £3.60 from August) is paid out every year in prizes. But although the prizes include two £1 million payouts and other big prizes, many win far less.

Below is a breakdown of how the number of prizes awarded is estimated to change from August 2025: