Premium Bonds or savings accounts?

Set up in 1956, the UK government introduced Premium Bonds to encourage people to save money, whilst also having the chance to win cash prizes in a monthly prize draw. Nearly 75 years later, around 21 million people in the UK held Premium Bonds, according to NS&I. So, are they a better option than a traditional savings account? In this guide, we’ll compare Premium Bonds vs savings and look at the pros and cons of both.

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In short, it depends. Whether you prefer Premium Bonds or savings accounts will depend on your preferences, savings goals and financial situation.

The main difference between the two is the rate of return you’ll receive: with Premium Bonds, you’ll typically earn no interest on the money you’ve deposited, but you’ll have the chance of winning tax-free, monthly prizes in a prize draw - from £25 up to £1 million. In comparison, a savings account will have a guaranteed level of interest attached to the account (either fixed or variable), so you’ll know exactly how much interest you’ll earn in a set period.

Compare the pros and cons of Premium Bonds vs savings accounts in the table below.

As of April 2025, the prize rate for Premium Bonds is 3.80%*. This means, on average, each £1 bond has the potential to win the equivalent of 3.80%. In theory, the more you save in your Premium Bonds account (up to your maximum deposit of £50,000) the more chance you have of winning a prize, as the more bonds you hold, the greater the number of entries you have in the monthly prize draw. However, as Premium Bonds are a form of luck-based savings, there’s still no guarantee of winning no matter how many bonds you hold.

If you’re okay with the possibility of not increasing your balance, you may decide it’s still worth putting your money in Premium Bonds for the chance of winning a tax-free, monthly prize, however small. If you’ve also surpassed the threshold for tax on savings interest for the year, and you’ve maximised your ISA allowance, you may also consider Premium Bonds to be a safe, tax-free way to invest a lump sum.

However, if you’re wondering whether it’s better to go for Premium Bonds or savings, and you know you would prefer to receive a guaranteed return on your money, a fixed rate bond offering a competitive AER may be a better option for growing your savings.

When it comes to Premium Bonds or savings, cash savings would be considered better for most people on average. As we mentioned above, the prize rate for Premium Bonds is 3.80%. This is typically lower than the rate of interest you’ll find on most savings accounts, and it may be lower than the current rate of inflation. Plus, of course, it’s not a guaranteed prize rate anyway.

Although cash savings accounts don’t offer a monthly or annual prize, you will typically receive a regular interest payment which is paid monthly or on an annual basis. If protecting your money from tax is important, you could also consider opening an ISA, which allows you to save up to £20,000 per year, tax-free. Find out what an ISA is and how it works.

So are Premium Bonds better than a savings account? For most people, probably not, but you may still enjoy the chance (however small) of winning a tax-free prize.

There’s nothing to stop you from using Premium Bonds as a savings account as long as you’re content with the possibility that your balance may never increase, as it would in a traditional savings account with a set or variable AER.

Premium Bonds are backed by the government, so you can be content that your money is secure and protected, but this is also the case with any savings account with FSCS deposit protection in the UK.

As with savings accounts for grandchildren, you can also open a Premium Bonds account for your child or grandchild, so this may also feel like a convenient investment in their future and a way to ‘save’ money, as you can carry on depositing money on their behalf until they are 16 (and of course, they may also win a prize).

As with any investment, it’s important to weigh up the pros and cons and ensure you compare Premium Bonds vs savings properly.

Raisin UK offers a safe, flexible way of saving, by earning guaranteed interest from savings accounts with rates up to 4.70%. Our marketplace makes it easy to browse, apply for and manage all your deposit-protected savings accounts under one roof. Register today and start earning interest on your savings.

*https://www.nsandi.com/products/premium-bonds