Premium Bonds pay no interest. As at 9 October 2026, NS&I quotes an annual prize fund rate of 4.35%, variable, with odds of 21,000 to 1 for each £1 Bond in each monthly draw (NS&I). That rate is an average across all Bonds, and most holders get less: 80% of the prize money goes on £25, £50 and £100 prizes, and in our simulation of a year of draws the median holder of £50,000 received about 3.80%. Because prizes are tax-free, the fair comparison with gilts and fixed-rate savings is on an after-tax basis, band by band.
What NS&I says
Premium Bonds are entered into a monthly draw with prizes from £25 to £1 million, and prizes are free from UK income tax and capital gains tax. You can hold between £25 and £50,000, must be 16 or over with a UK bank account to buy, and can cash in at any time. New Bonds must be held for a whole month before they enter a draw: Bonds bought in November first enter the January draw. NS&I says it is backed by HM Treasury (NS&I).
The prize fund rate and the odds are both variable, and NS&I says it can change them at any time, for example before new Bonds become eligible for their first draw.
Where the prize money goes
NS&I splits each month’s prize fund into three bands and publishes the number of prizes of each value (NS&I). For the October 2026 draw:
| Band | Share of prize fund | Prizes, October 2026 draw | Number of prizes |
|---|---|---|---|
| Higher value | 10% | £1 million (2), £100,000 (96), £50,000 (191), £25,000 (382), £10,000 (957), £5,000 (1,914) | 3,542 |
| Medium value | 10% | £1,000 (19,934), £500 (59,802) | 79,736 |
| Lower value | 80% | £100 (2,371,145), £50 (2,371,145), £25 (1,721,281) | 6,463,571 |
| Total | 100% | Worth £498,378,775 | 6,546,849 |
So 98.7% of prizes are worth £25, £50 or £100. The top two bands share a fifth of the money among about 83,000 prizes a month.
Why the typical holder earns less than 4.35%
The prize fund rate is a mean. The large prizes are so rare that most holders never win one, yet they account for 20% of the money. A holder whose luck runs to the normal pattern of £25, £50 and £100 prizes earns roughly the lower band’s share: 80% of 4.35%, or about 3.48% a year.
To measure it more directly, we simulated 400,000 holders at each holding size over 12 monthly draws, using NS&I’s October 2026 prize table and 21,000 to 1 odds. The model assumes both stay unchanged for a year and every Bond is eligible in every draw. It describes the spread of outcomes; it is not a forecast.
| Holding | Prizes expected a year | Chance of no prize in a year | Median return | Middle 80% of outcomes | Chance of beating 4.35% |
|---|---|---|---|---|---|
| £1,000 | 0.6 | 56% | 0% | 0% to 10.00% | 35% |
| £10,000 | 5.7 | 0.3% | 3.50% | 1.50% to 6.75% | 32% |
| £25,000 | 14.3 | Close to nil | 3.70% | 2.30% to 6.00% | 31% |
| £50,000 | 28.6 | Close to nil | 3.80% | 2.70% to 5.45% | 30% |
Averaged over every simulated holder, the return comes back to about 4.35%, because the rare large prizes pull the mean up. The median, the result for the holder in the middle, is lower at every size, and roughly seven in 10 holders of £50,000 received less than the headline rate. Small holders face the widest spread: more than half of £1,000 holders won nothing in the year, while a single £100 prize gave others 10%.
What else moves the result
- The first-month wait. Because new Bonds sit out a whole month, a holding bought in November misses the November and December draws. Over its first 12 months it enters 10 or 11 draws rather than 12, which trims the first-year return by between a twelfth and a sixth.
- Reinvested prizes. NS&I can reinvest prizes automatically, and Bonds bought that way are eligible from the very next draw (NS&I), up to the £50,000 limit.
- Rate changes. The prize fund rate and odds are variable, so the figures above hold only while NS&I keeps them.
- Inflation. Prizes are fixed sums of money. With consumer prices up 3.1% in the 12 months to August 2026 (ONS), a median return of 3.50% to 3.80% leaves little real gain.
Comparing Premium Bonds with savings, by tax band
Because prizes are tax-free, compare them with what a savings account pays after tax. Divide the tax-free rate by one minus your savings tax rate to find the gross rate a fully taxed account would need to match it. From 6 April 2027 the savings rates are 22%, 42% and 47% (HMRC).
| Tax band, 2027 to 2028 | Gross savings rate needed to match 4.35% tax-free | Gross savings rate needed to match 3.80% tax-free |
|---|---|---|
| Basic rate, 22% | 5.58% | 4.87% |
| Higher rate, 42% | 7.50% | 6.55% |
| Additional rate, 47% | 8.21% | 7.17% |
The grossing-up only applies to interest above the Personal Savings Allowance: £1,000 for basic-rate taxpayers, £500 for higher-rate taxpayers and nothing for additional-rate taxpayers (GOV.UK). A basic-rate taxpayer whose interest fits inside the allowance pays no tax on it, so a savings account only has to match the Premium Bond figure itself.
Premium Bonds vs gilts
A gilt’s return after tax depends on its coupon. Coupons are taxed as savings income, but gains are free of capital gains tax (GOV.UK), so a low-coupon gilt bought below £100 earns most of its return tax-free. In our hypothetical example in gilts or a savings account, a two-year gilt yielding 4.00% gross keeps 3.89% after tax for a higher-rate taxpayer with no allowance left. That figure can be set directly against the 3.48% to 4.35% range for Premium Bonds, because both are after tax.
The difference is certainty. A gilt held to maturity pays known amounts on known dates. A Premium Bond holding pays a random amount at a rate NS&I can change. Our explainer on low-coupon gilts shows how to work out a gilt’s after-tax yield.
The other differences
| Premium Bonds | Gilts held to maturity | Fixed-rate savings | |
|---|---|---|---|
| Return | Random prizes; variable prize fund rate | Known coupons and repayment | Fixed rate for the term |
| Tax | Prizes tax-free | Coupons taxed; gains tax-free | Interest taxed above the allowance |
| Access | Cash in at any time | Sell at the market price before maturity | Set by the account terms |
| Limit | £50,000 per person | None | Set by the provider |
| Protection | NS&I is backed by HM Treasury | The government’s promise to pay (DMO) | FSCS up to £120,000 per person, per institution (FSCS) |
| Inflation | No link | No link, except index-linked gilts | No link |
Premium Bonds are not affected by the April 2027 cash ISA changes, which are covered in our cover story. For how gilts work, see bonds explained.
