The prize fund rate for Premium Bonds has dropped several times this year
Premium Bonds customers have been urged to consider whether the savings scheme is the right place to grow their savings. Bond holders may be thinking about cashing in their holdings as the prize fund rate has declined several times this year. The rate dropped from 3.8 per cent to the current 3.6 per cent from the August draw, after previous reductions in April and January.
Rosie Hooper, chartered financial planner at Quilter Cheviot, said Premium Bonds remain a favourite option for many savers. Yet she pointed out the chances of winning a prize are “relatively low”, currently standing at 22,000 to one for each £1 Bond entered into the monthly draw.
She said: “For some, it’s less about returns and more about the enjoyment and peace of mind they offer. That said, Premium Bonds aren’t the most effective way to grow your money over time, particularly if you are young.”
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Nevertheless, she suggested that older savers may value certain perks of the scheme. The finance expert said: “In later life, however, Premium Bonds can still play a valuable role.
“They’re capital secure, easy to access, and any winnings are tax free. For someone living on a fixed income, they can act as a flexible emergency fund that provides both financial security and a little monthly excitement.”
Premium Bonds are provided by NS&I which is backed by the Treasury, meaning all your deposits are secure. You can hold up to £50,000 in Bonds.
Many bondholders opt to reinvest their winnings in buying more bonds. If you’re considering cashing in your bonds, Ms Hooper explained some of the other accounts you could look at.
She said: “With interest rates on savings accounts and fixed-rate bonds having risen in recent years, many alternatives now offer better guaranteed returns. For those looking to build their wealth or protect their savings from inflation, options such as investing in a stocks and shares ISA may be more suitable.
“A diversified investment portfolio, held over the long term, has a much better chance of growing and compounding in real terms than Premium Bonds ever will.” Tom Francis, head of Personal Finance at Octopus Money, believes that for most people, a cash ISA or a “competitive” savings account will outperform Premium Bonds.
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He explained: “The chances of a big Premium Bond win are slim. In February 2025, fewer than 0.001 percent of the UK’s 24 million bondholders won £50,000, and just 0.007 percent took home £5,000. Most prizes are much smaller, and the average wait to win anything at all is 3.5 years.”
Your chances of winning improve if you hold more bonds, as this gives you more entries into the monthly draw. Mr Francis said: “When you look at the jackpots, the odds are skewed towards the wealthiest savers: in the past five years, 94 percent of million-pound winners held more than £10,000 in bonds, and three quarters held over £25,000.
“By contrast, a good savings account pays guaranteed interest from day one. Over £4.25 billion has been held in Premium Bond accounts in the UK that have had no activity in the past decade – earning zero interest, eroding individual wealth and missing the opportunity to grow through more effective investment vehicles.”
