What are Premium Bonds?

Premium Bonds are a UK savings product issued by the government-backed National Savings and Investments (NS&I). Launched in 1956, they offer a way for bondholders to save money while potentially earning tax-free prizes. Rather than receiving interest, savers are entered into a monthly draw with the chance to win cash prizes, ranging from £25 to £1 million.

Premium Bonds are a government-backed savings product issued by National Savings and Investments (NS&I) in the UK. Instead of earning interest, bondholders are entered into a monthly prize draw, where they have a chance to win tax-free prizes ranging from £25 to £1 million. Each bond costs £1, and the more bonds you hold, the greater your chances of winning. For example, if you have £100 in Premium Bonds, you’ll have 100 bond numbers. Despite offering no guaranteed returns, Premium Bonds are a secure investment, as they are backed by the UK Treasury.

Premium Bonds are different from traditional savings accounts, as they don’t accrue interest. Instead, they give bondholders the opportunity to win prizes. The odds of winning depend on how many bonds you own and the total number of bonds in circulation. Every month, a random draw takes place, and bondholders have the chance to win prizes instead of earning interest on their savings. It's essentially a savings product combined with a lottery system, offering the potential for large, tax-free cash prizes - or, alternatively, winning nothing at all. You can choose to reinvest any winnings into your Premium Bonds account, or have them automatically withdrawn to your linked bank account.

In order to open Premium Bonds, first you will need to open an account with NS&I. Once you’ve set this up, you can make your first deposit, from a minimum of £25 to a maximum of £50,000. You’ll have to wait a full calendar month before you are eligible for the next prize draw, so for example, if you buy Premium Bonds on 31 May, your first prize draw would be in July.

Premium Bonds cannot be directly transferred to another person, including family members. They are non-transferable by nature, meaning the original bondholder must remain the owner. However, you can cash in your bonds and give the money to someone else, who can then buy Premium Bonds in their own name. In the event of a bondholder's death, their Premium Bonds can be transferred to their estate and managed according to the will or the relevant inheritance laws.

Yes, Premium Bonds can be opened by adults for a child under 16. Parents, legal guardians and grandparents can invest on behalf of their child or grandchild.

If you’re not the parent/guardian of the child, you can still open Premium Bonds for a child (for example, a niece or nephew, or a family friend), but you will need to let the parent/guardian know before setting the Premium Bonds account up, as NS&I will need to contact them directly to request evidence of identity and address.

Yes, Premium Bonds are completely tax-free. Any prize you win, whether it’s £25 or £1 million, is free from income tax and capital gains tax. This makes them an attractive option for those who want to avoid the tax implications that come with earning interest on other types of savings accounts or investments, although obviously there’s no guarantee that you will ever win.

As of 2024, the odds of Premium Bonds winning a prize in the monthly prize draw are one in 21,000. This works out to a ‘prize rate’ of 4.4%. In theory, if you have more than £21,000 saved in Premium Bonds, you should win a prize of some sort in each monthly draw.

To check old Premium Bonds, such as those held for 40 years, you can use NS&I's tracing service. You’ll need to find your bond numbers, then you can enter them into NS&I's online prize checker or use their app. If you no longer have the bond numbers, you can contact NS&I and provide details like your name and address at the time of purchase, and they should be able to help you track down your old bonds. NS&I maintains a list of unclaimed prizes, which could include wins from years ago.

Premium Bonds are generally considered not to be halal according to most Islamic scholars. This is because Premium Bonds involve an element of gambling (by entering a prize draw) and do not guarantee a return on investment, which is against Islamic finance principles that prohibit interest (riba) and speculation (gharar). However, opinions may vary depending on individual interpretations of Islamic finance.

The maximum amount of Premium Bonds you can hold is £50,000. You can purchase bonds in increments of £25, which is the minimum you can deposit. Once you reach the maximum limit, you will no longer be able to buy more. However, the bonds you already own will remain in the prize draw each month. If you won a prize that took you over the £50,000 limit, you would need to withdraw these savings into your linked bank account.

No, Premium Bonds do not expire as long as you hold them. They remain eligible for monthly prize draws indefinitely, or until you choose to cash them in. However, if a prize remains unclaimed for over 18 months, NS&I may attempt to contact you. Prizes themselves can remain unclaimed for years, and there's no expiration date on claiming them.

Premium Bonds are considered to be a fun way of saving money in a pot and being in with a chance to win tax-free prizes. However, there’s also the chance that you don’t ever win even the smallest prize - especially if you hold less than £21,000 in your account.

If you would prefer to earn a guaranteed rate of interest on your savings, a traditional savings account might be a better option. Fixed rate bonds, easy access savings accounts and notice accounts at Raisin UK all offer guaranteed interest, and full FSCS (or equivalent) protection.