## Are they worth it?

Line up everyone with £1,000 worth of Premium Bonds in order of their year's winnings, and the person halfway along would have won... not a penny! In fact, you'd need to walk past 60% of the line until you hit the first £25 winner.

Premium Bonds are the UK's biggest savings product, with more than 24 million people saving over £124 BILLION in them. But the prize rate dropped to 4.4% in March and with normal savings paying over 5%, should you still be buying them? MoneySavingExpert.com's Martin Lewis uses exclusive statistical analysis to tackle the big question – are Premium Bonds worth it?

This guide was originally written by Martin Lewis, and is now updated by the MSE Money Team.

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1. ### What are Premium Bonds?

NS&I Premium Bonds are a savings account you can put money into (and take out when you want), where the interest paid is decided by a monthly prize draw. You buy £1 bonds and each has an equal chance of winning, so the more you buy, the more your chances improve.

NS&I spices up the draw by personifying its IT equipment – it calls it Ernie (Electronic Random Number Indicator Equipment). In reality, it's a simple, audited, random number generator.

The distribution of prizes changes each month. Below is a table of the typical current distribution:

Prize amount Number per month Odds of winning AT LEAST this amount per £25 of bonds in one month (1)
£1 million 2 1 in 2,489,469,818
£100,000 87 1 in 57,229,187
£50,000 175 1 in 19,003,586
£25,000 349 1 in 8,148,838
£10,000 874 1 in 3,352,821
£5,000 1,745 1 in 1,541,468
£1,000 18,256 1 in 231,727
£500 54,768 1 in 65,295
£100 2,188,464 1 in 2,199
£50 2,188,464 1 in 1,118
£25 1,474,128 1 in 840
£0 124,467,567,310 Virtual certainty

(1) £25 is the minimum number of bonds you can buy. | Prize breakdown for July 2024.

The easiest way is online through the NS&I website.

• Minimum purchase amount: £25 for one-off purchases and monthly standing orders.
• Maximum amount you can hold: £50,000.
• Age limit: Over 16 to buy them; under that age they may be held in the name of under-16s by parents or guardians. Anyone can now buy Premium Bonds for under-16s, then nominate the child's parent or guardian to hold them.

In general, you need to hold the bonds for a full month before they're eligible to win. So buy bonds any time in June and they'll be in the draw from August. If you're moving money over from other savings, it's best to do it in the last week of the month, as that way you minimise the time the money's not earning interest and also not in a draw for Premium Bonds.

The exception to this is if you reinvest your prizes – these bonds will be in the draw from the month after you win. So let's say you won £25 in June and had reinvesting set up – the new £25 worth of bonds would be in July's draw.

Bonds continue to be eligible until you cash them in, which can be at any time. You can cash in by making a request online, or by phone or post. It'll take up to three working days for you to get the cash from the time the request is received by NS&I.

• ### What happens if I save more than £50,000?

The maximum holding limit of £50,000 is strictly enforced – if for any reason you've more invested and NS&I catch on (for example, due to different spellings of names or other missing information), it will repay any surplus back to your nominated bank account, although you may have to repay any prizes won in that time via bonds that were ineligible because of the maximum holding limit being exceeded. These prizes are then reallocated to the next eligible bond drawn in the relevant month's draw.

2. ### Are Premium Bonds tax free?

Premium Bond prizes (the interest) are paid tax-free. However, for many people that's no longer a bonus.

Since 2016, the personal savings allowance (PSA) has meant all savings interest is automatically paid tax-free. You only need to pay tax on it if you're a basic 20% rate taxpayer earning more than £1,000 interest a year, a higher 40% rate taxpayer earning more than £500 interest a year, or a top 45% rate taxpayer.

At today's top easy-access rate, a basic-rate payer would need just under £20,000 of savings to generate that – so if you've less, Premium Bonds don't have a tax advantage.

For those who will pay tax, there is a decent advantage of Premium Bonds as prizes do not count towards the PSA, so it's almost an extra allowance in its own right (assuming you win something, of course).

3. ### The average return on Premium Bonds is 4.4%, but you won't earn that even  with average luck

The nearest thing Premium Bonds have to an interest rate is their annual prize rate, which is currently 4.4%. The interest rate describes the 'average' payout, but it's just a vague watermark.

It describes the 'mean' average, indicating that for every £100 paid into bonds, on average £4.4 a year is paid out – yet in practice this is impossible, as the smallest prize is £25.

In fact the Premium Bond Probability Calculator shows if 20 people each had £100 invested for a year, for one to win £25+, the remaining 19 would have to win nothing.

A far better indication of what someone with typical luck would win is the 'the person halfway along' measure. Those who can dredge up their school maths will remember this is called the median.

Why the Premium Bond prize rate isn't what you'll win

To show you why using the 'mean' average isn't a good description of what most people will win, let me use an extreme example…

Imagine I sold a million people a £1 lottery ticket, and then paid just one winner a million pounds.

I could argue, mathematically, that the average (mean) payout was £1, so on average everyone got their money back. This, of course, is bonkers.

Almost everyone wins nothing – which is the median average – as if you lined them all up and asked, the midway person would've won nowt.

So to really see average luck, you need to focus on this 'median' average returns figure. And for the rest of this guide, whenever I refer to average luck, that's what I mean.

With Premium Bonds, for every person who wins £1 million, a lot of people have to win nothing. So the median average will always be lower than the mean average.

What you'll win over a year with average luck, based on the 4.4% rate

##### Amount saved in bonds Median average winnings Equivalent prize rate £100 Nothing 0% £1,000 Nothing 0% £10,000 £375 3.75% £25,000 £950 3.8% £50,000 £1,950 3.9%

Yet as you can see, with average luck, most people will win less than the prize rate.

4. ### As NS&I is Government-owned, savings there are as safe as it gets, but these days almost all UK savings are protected anyway

With Premium Bonds there is no risk to your capital – so the money you put in is totally safe – it is only the 'interest' that is a gamble. And as Premium Bonds are operated by NS&I which, rather than being a bank, is backed by the Treasury, this capital is as safe as it gets.

This safety used to be a big boon because you didn't get the same protection with other savings. However, under the savings safety rules all UK-regulated savings accounts are now protected up to £85,000 per person, per institution by the Financial Services Compensation Scheme (FSCS) – and the maximum you can put in Premium Bonds is £50,000.

In practice, isn't NS&I still safer though?

Technically yes, as there is one difference. As NS&I is owned by the Government, it simply won't go bust. Well, unless the Government itself goes bust that is, in which case we'll have bigger problems.

Other savings institutions may go bust, and if this happened, if no rescue measures succeeded, in that extreme event you'd have to claim back your capital and interest from the FSCS.

The FSCS aims to usually pay out on savings within seven days. So yes, arguably there are tiny safety benefits from NS&I as it should never go bust. Therefore there could never be a situation where you have to wait to get your money (as there could be for a few days with other savings).

5. ### Use the unique Premium Bonds Calculator to work out what you're likely to win and whether you're likely to beat savings

On the surface, Premium Bonds don't look complex. NS&I happily lists the chance of one bond winning a prize in a month (1 in 21,000) on its website.

Yet to calculate the odds of winning certain prize levels accurately, you need to use something called 'multinomial probability'. After all, to work out the chance of someone winning £200 a year, they could win 2 x £100, 8 x £25, 4 x £50, or a host of other variants. This multitude of probabilities means accurate calculation is hellish.

Back in 2012, I set myself a challenge to do it. I failed. I got one of my team with a top maths degree to try. He failed. We contacted a London School of Economics professor of financial mathematics – she knew how to work it out, but she needed a specialist to do it for her.

Eventually we tracked down a postdoctoral cosmology statistician (someone who calculates star movements) who had the requisite probability skills, and he wrote us an algorithm to build a calculator. We've since refined and updated it in light of changes to the distribution of the prizes, and have recently launched a new version of the Premium Bonds Calculator.

This allows you to plug in how many bonds you have, and it will predict your likely winnings and compare them with savings. It proves that at every value, someone with typical luck will earn less than the quoted prize rate.

The odds in the calculator are based on the prize distribution for the most recent draw; it does change slightly each month. So even with all the great maths, even this should only be seen as a very good estimate.

6. ### If you won't earn over the personal savings allowance, and have average luck, Premium Bonds are unlikely to beat top savings

The personal savings allowance means that basic-rate taxpayers can earn £1,000 of interest a year tax-free (£500 for higher-rate taxpayers, nothing for additional-rate taxpayers).

So that makes the Premium Bond rate very easy to compare with other savings (rates correct at 1 July). Let's start by simply using the prize fund rate of 4.4%.

The Premium Bond rate isn't far behind these savings rates, but the prize rate's almost irrelevant to what you actually win, so the question still stands: "Should I move cash to Premium Bonds or savings?"

Let's stick with the prize rate for now (even though in practical terms it is almost impossible to win some of these amounts) and see how it compares in real terms with the best on the market. The figures below are based on a basic-rate taxpayer withe a PSA of £1,000.

How Premium Bonds compare with savings over a year

£1,000 saved – what you'll earn £5,000 saved – what you'll earn £20,000 saved – what you'll earn
Premium Bonds (1) £44 £220 £880
Top easy-access savings
£51 £255 £1,016
Top easy-access ISA £52 £260 £1,040
One-year fixed savings £52.40 £262 £1,038.40
Two-year fixed ISA £46.80 £234 £936
(1) Someone with average luck is actually likely to win less than this, and the prize distribution means you can't actually win these amounts. Rates correct at July 2024.

As you can see, Premium Bonds can still be beaten by savings rates, and that's when I exaggerate what they're likely to pay by utilising the prize rate. As I explained earlier, if you have average luck you won't win as much as the 4.4% prize rate, so let's compare the predicted returns using the Premium Bond Probability Calculator.

Chance of beating a 5.1% savings account if you don't pay tax on interest, based on the current 4.4% prize rate

£100 £1,000 £5,000 Amount saved in bonds Interest at 5.1% (1) What % chance Premium Bonds have of beating top savings over a year £5.10 6% £51 23% £255 24% £1,530 18% £2,550 16% (1) Top easy-access savings account paying 5.1% interest, assuming a non-taxpayer's rate or personal savings allowance, and that the interest is withdrawn, not compounded, as this is how most people use Premium Bonds. Rates correct at 1 July 2024.

When we compare Premium Bonds against simple top standard savings, you're actually more likely to get more for your money with savings than Premium Bonds if you have average luck.

So overall, the summary is Premium Bonds can beat normal easy-access savings, but you'll need to have above average luck to ensure that comes true – and for most, guaranteed interest from savings is the better option.

7. ### If you pay tax on your savings, and have average luck, Premium Bonds become a slightly better bet

Premium Bonds are a slightly better bet for those with larger amounts of savings, especially if you're a higher- or top-rate taxpayer. This is because if you've used up your personal savings allowance (PSA) on normal savings – so you earn over £1,000 of interest a year as a basic-rate taxpayer or over £500 for higher-rate taxpayers – then all savings above that are taxed at your income tax rate.

That means a basic-rate taxpayer only gets 80% of their interest, a higher-rate 60% and a top-rate taxpayer 55%. Yet money made from Premium Bonds, like cash ISAs, is always tax-free and does not count towards the PSA, so it's almost like an extra allowance.

Let's start by simply using the Premium Bond prize fund rate of 4.4% – even though, as explained already, most people won't win that much.

How Premium Bonds compare with savings rates if you pay tax on your interest

##### Amount saved Within PSA / non-taxpayers Basic-rate tax Higher-rate tax Top-rate tax Premium Bonds (1) 4.4% 4.4% 4.4% 4.4% Top easy-access savings 5.1% 4.08% 3.06% 2.81% Top easy-access ISA 5.2% 5.2% 5.2% 5.2% One-year fixed savings 5.24% 4.19% 3.14% 2.88% Two-year fixed ISA 4.68% 4.68% 4.68% 4.68% (1) Someone with average luck is actually likely to win less than this. Rates correct at 1 July 2024.

Now let's take the analysis up a step, and look at how likely you are to beat top savings with Premium Bonds.

Chance of beating a 5.1% savings account over a year if you pay tax, based on the current 4.4% prize rate

£100 £1,000 £5,000 £30,000 £50,000 Amount of bonds Odds of winning £0 Basic-rate taxpayers Higher-rate taxpayers Interest in savings (1) Odds of winning this or more with Premium Bonds Interest in savings (1) Odds of winning this or more with Premium Bonds 94% chance £5 6% £5 6% 57% chance £51 23% £51 23% 6% chance £255 24% £255 24% 1 in 28m £1,424 25% £1,118 52% 1 in 2.6tn £2,240 28% £1,730 65%

So overall, the higher tax band you're in, and the more money you're saving in Premium Bonds, the better a bet they look for you. Here, Premium Bonds do start to look attractive – though remember, you'll need average luck to get these returns, and most aren't that lucky.

8. ### Of course you may have better than average luck, but don't bank too hard on winning the jackpot...

All my comparisons with savings products above are based on somebody who has average luck, and indeed that is the sensible way to assess this. However, it is impossible to ignore the fact that some will have better than average luck, and indeed that does need to be factored in to your decision.

Certainly if there is only a marginal difference in the amount you are likely to earn from savings compared with Premium Bonds, then you can factor in "the chance of winning large" as an additional fringe benefit of Premium Bonds, and it wouldn't be too bad to let that sway your decision marginally.

Equally you may decide that you like a punt, and even if the odds aren't great, putting a non-substantial portion of your savings into Premium Bonds isn't too bad an idea. But I would always use the Premium Bonds Calculator first to see what your real chances are.

And you do even have a chance of winning £1 million; then again you could also toss a coin and see it land on its edge.

Your chance of winning the jackpot per ticket on the National Lottery is one in 45 million in a week, far outstripping the one in more than 60 BILLION chance of becoming a millionaire through one single Premium Bond in a month. Of course though, the more bonds you have, the more chance you have of winning.

Bonds are entered into the draw every month, rather than as a one-off. Here are your odds of winning the jackpot over a year.

Chance of winning £1 million in a year, based on the current 4.4% prize rate

• ### How do I claim a prize if I win?

The simplest way is to make sure you're registered for NS&I's online and phone service, in which case you'll automatically get an email or text if you win. If you don't have an email address or mobile number, contact NS&I on 08085 007007 to discuss your options.

Prizes are paid directly into your nominated bank account, or automatically reinvested into more Premium Bonds, depending on what option you chose when signing up – you can check and change your preference using NS&I's prize option service, or by filling out this form and sending it to NS&I, Sunderland, SR43 2SB.

If you don't have a bank account set up, you will instead be sent a cheque to your registered address. It's therefore crucial to make sure you keep your contact details up to date, and particularly if you move address, be sure to notify NS&I.

Prizes that are not claimed by their rightful recipient at the time of the draw are held by NS&I until that person comes forward. If it transpired that the bond holder was not eligible for that draw, NS&I would allocate the prize to the next eligible bond holder.

9. ### The most powerful psychological sell of Premium Bonds is that interest is called winning

This lottery-effect hooks you into the unlikely dream of bagging a million-pound prize.

I often hear excited comments such as: "My friend wins £50 every few months!" Yet someone with £10,000 worth of bonds should win £350+ a year – that's £50 every few months.

Don't just rely on your memory of what you won, though. The win effect means people remember the good months. Take a look and calculate what you're actually winning to see how it'd compare with top savings – and how good your luck has been.

10. ### Premium Bonds are still unlikely to beat inflation at the current rate

If you save money anywhere and it doesn't grow as quickly as prices are rising, then in real terms your savings are actually shrinking, not growing. Inflation is the measure of prices rising, so if your savings pay more than inflation then they're growing, if not they're shrinking.

Inflation has gradually lowered from near 40-year highs last year. Interestingly, your odds of beating inflation with larger amounts saved in Bonds has increased greatly as inflation has lowered – yet if you've saved less than £1,000, you're still unlikely to beat inflation.

Chance of beating inflation at 3%, at the current 4.4% prize rate

Amount of bonds Annual winnings needed to beat inflation Odds of earning this or more with Premium Bonds over one year
£100 £3 6%
£1,000 £30 36%
£5,000 £150 60%
£10,000 £300 65%
£50,000 £1,500 83%

Rates correct at July 2024.

11. ### Most can opt to resave winnings, so the gain compounds (hopefully)

When you win with Premium Bonds, rather than taking the cash, you can simply arrange for the money to be reinvested (unless you already hold the maximum £50,000). In other words, your winnings will buy more bonds. That increases your holding, and therefore increases your chances of winning.

If you are going to put money in Premium Bonds and you don't need the cash, then this is a sensible move, as it is effectively like compound interest in a normal savings account. The hope is you get growth on the growth (or here, prizes on the prizes).

12. ### There's over £88 million in unclaimed Premium Bonds prizes, so check if you're owed...

You can check if any are yours via the NS&I website – there's no time-limit to claims, so you can go back as far as you like.

You'll need your Premium Bond holder's number – just enter this on the website linked to above. You can choose to check the latest draw, the last six months, or any unclaimed prizes.

For full information and other ways to claim if you don't know all your Premium Bond details, see our Unclaimed Premium Bond prizes MSE News story.

13. ### Premium Bonds can't be passed on if you die, but what they're worth will be

Premium Bonds can't be passed on. If a Premium Bond holder dies, the bonds only remain eligible to win for 12 months. So the only way to pass them on is to cash them in and then that forms part of the deceased's estate. The executor will need to cash the bonds in to be able to distribute them to the beneficiaries.

However, if prizes were won before the 12-month limit, they can still be claimed with no time-limit.

Premium Bonds aren't inheritance tax free, so if the capital tied up in them forms part of the estate and is passed on, they may be taxed (see our Inheritance tax guide for when you might need to pay).

Another potential snag I've heard of is that you may need to get probate on the bondholder's estate if the Premium Bond holding is over £5,000, even if it's not needed to release the rest of the estate's assets held with other organisations. For more, see NS&I's guide.

14. ### Are Premium Bonds a good investment?

Look at Premium Bonds with a clinical financial eye and they're only a good bet as a serious place to put savings if you're lucky, or if you're a higher- or top-rate taxpayer who has used up their personal savings allowance, cash ISA allocation, and put the maximum in today's top 5.1% savings account.

But Premium Bonds are all about your mentality. They do protect your cash, so even if the returns don't look a good bet, it's fine to put a non-significant portion of your money in them, provided you're aware it's more for fun than returns. Before deciding, use the calculator to look at the real odds. If you're willing to take the gamble after that, then it's fine.

Many people often think: "I'm likely to get about 4.4% and there's a small chance of winning a million". But the main point is that this isn't correct. You're actually likely to get quite a lot less than 4.4%, and there's a negligible chance of winning a million. If you know and you're OK with this, then investing in Premium Bonds isn't a bad plan.

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