Premium Bonds vs Savings: After-Tax Return Calculator (UK, 2026)

The NS&I prize fund rate as of April 2025 is 4.40% effective annual. It's reviewed periodically (usually 3-4 times/year) and has ranged from 1.0% to 4.65% in recent years. Unlike savings accounts, there's no contractual rate — it's the expected value across all prizes if you hold an "average" amount.

The prize distribution is highly skewed. Two £1M monthly jackpots and a small number of £100k/£50k/£25k prizes pull the mean up, but those prizes go to very few people. The median holder earns LESS than the headline 4.40% rate — especially on smaller holdings. A £1,000 holding has roughly a 40% chance of winning zero prizes in 12 months.

Two scenarios. (1) Higher/additional-rate taxpayers with holdings above £10-15k who have exhausted their £500/£0 Personal Savings Allowance — every £1 of savings interest is taxed at 40-45%, but Premium Bond prizes are tax-free. (2) Anyone who also values the big-win lottery optionality. For basic-rate taxpayers with PSA headroom, easy-access savings at 4.5%+ typically win on pure return.

£50,000. You can buy in from £25 and purchase as many as you like up to that limit. There's no minimum holding period — you can cash out anytime, usually within 8 working days (or instantly if you use online banking).

Yes — prizes are not subject to Income Tax or Capital Gains Tax. You don't need to declare them. However, the bonds themselves (and any winnings you accumulate) count toward your estate for Inheritance Tax purposes. For higher-earner couples who want a "legitimate tax-free income source" outside ISAs, Premium Bonds are genuinely useful.

For a £1,000 holding over 12 months: 1 in ~7,700 chance of winning £1M, 1 in ~850 of £100k, 1 in ~425 of £50k. Scale proportionally with holding size. At the £50k maximum held for 12 months: 1 in ~155 for £1M jackpot. Most holders never win a big prize — but the expected return still comes from the small £25, £50, £100 prizes which are much more common.

Premium Bonds are backed 100% by HM Treasury — the safest place to hold cash in the UK. Unlike bank deposits which are only FSCS-protected up to £85,000, Premium Bonds have unlimited government backing. No bank-run risk, no counterparty risk.

Yes, by default. NS&I automatically reinvests prizes up to the £50k holding cap (bonds bought via reinvestment are added to your existing holding with the same serial number). Reinvestment compounds your expected return. Only disable reinvestment if you need the prizes as income or you're already at £50,000.