Twenty-four million people hold Premium Bonds, and most hold them on a misreading: the prize rate is an average across all bonds, not something your bonds earn. This page works what they are actually worth at three balances and three tax bands, and where the honest crossover sits.
The annual prize fund rate is 3.80% and the odds are 22,000 to 1 per £1 bond per monthly draw. Both numbers are honest; the illusion is reading 3.80% as an interest rate.
The 3.80% is the total prize pool divided by the total bonds in the draw, including the £1 million jackpots. Because a slice of the pool sits in enormous prizes almost nobody wins, the typical holder receives less than the rate, and small holders usually receive nothing at all. The right way to read Premium Bonds is as a savings account whose interest is fed into a lottery: the average pound still earns roughly the prize rate before tax effects, but the experience of any one holder depends heavily on how many tickets they hold.
Expected prize money at the 3.80% rate, the chance of a prize-free year, and the same money in NS&I's own easy-access Direct Saver at 3.45% for comparison, after tax at each band.
| Holding | Expected prizes in a year | Chance of winning nothing all year | Same money in the 3.45% Direct Saver (after tax) |
|---|---|---|---|
| £1,000 | £38 on average (about half a prize) | Roughly 58% | £35 gross; £35 basic-rate, £34 higher-rate within the savings allowance |
| £20,000 | £760 on average (about 11 prizes) | Under 1% | £690 gross; £690 basic-rate within allowance, £614 higher-rate |
| £50,000 | £1,900 on average (about 27 prizes) | Negligible | £1,725 gross; £1,580 basic-rate, £1,235 higher-rate |
The £1,000 row is the one the adverts never show: the most likely outcome of a small holding's year is nothing, and the "average" £38 is propped up by the tiny chance of a large prize. At that scale the certain £35 from a savings account is the better description of reality for most holders. The £50,000 row reverses the story, and not because the odds improve per bond; they do not. It reverses because 27 expected prizes a year makes the average meaningful, and because tax enters: prizes are tax-free, while a higher-rate taxpayer with a used-up savings allowance keeps only £1,235 of the Direct Saver's £1,725.
Information and guidance only. Not personal advice. The prize fund rate and odds are variable and change at NS&I's discretion; the comparison uses NS&I's own easy-access account, and other providers pay more than 3.45%, which shifts every crossover in this table against Premium Bonds. Expected values are averages, not promises. Verify current rates before acting, and verify decisions with a qualified FCA-authorised adviser where they are material.
Prizes are free of income tax, and Premium Bonds sit outside the personal savings allowance entirely. The people for whom that matters are exactly the people the allowance has abandoned.
A basic-rate taxpayer has £1,000 of savings interest tax-free each year; a higher-rate taxpayer £500; an additional-rate taxpayer nothing. A higher earner with substantial cash, savings allowance exhausted, ISA allowance already committed elsewhere, is the one saver for whom the large-holding Premium Bond is arithmetically respectable: £1,900 expected and tax-free against £1,235 after-tax from the same institution's savings account. For everyone else the comparison is closer to a coin-flip against a better market rate, and for small holders it is mostly a lottery ticket with a money-back guarantee. That last framing is not a criticism; it is the honest description of a £500 holding kept for the fun of the draw, which is a perfectly reasonable thing to keep, as long as nobody calls it a savings strategy.
Instant access with a 3 to 5 day withdrawal, Treasury-backed with no £85,000 ceiling to think about, tax-free prizes, and a cap of £50,000 a person. Those properties suggest their real jobs.
They can hold a chunk of an emergency fund for someone who values the state backing, provided the owner accepts a slightly lower and lumpier expected return than the best easy-access rates. They suit large short-term cash parked by higher-rate taxpayers, house-sale proceeds waiting for a purchase, where the tax-free average genuinely competes. And they are a defensible home for money that would otherwise sit in a current account earning nothing, the idle-cash problem. What they are not is a growth asset: over decades, an average 3.80% that trails inflation some years is the cost of certainty, not a path to wealth, and the wrapper comparison shows what the same money does with tax relief or equity growth behind it.
Methodology. Prize fund rate 3.80% a year and odds of 22,000 to 1 per £1 bond per monthly draw, both variable, from the July 2026 draw onwards; minimum £25, maximum £50,000; prizes free of UK income tax and capital gains tax; comparator NS&I Direct Saver 3.45% gross/AER variable. All verified at nsandi.com on 8 August 2026. Expected prizes computed as balance × 12 draws ÷ 22,000; chance of a prize-free year approximated from the same expectation; expected prize money as balance × prize rate. After-tax savings figures apply the personal savings allowance (£1,000 basic, £500 higher, £0 additional) from rules bundle UK-2026.1.1. All arithmetic machine-checked before publication. Published 8 August 2026 · figures last verified 8 August 2026.
Sonuswealth is pre-launch. The app compares your cash homes after tax at your actual band, including the allowances you have already used.