Premium savings bonds

Premium savings bonds are a government-backed investment where you can win tax-free cash prizes instead of earning interest.
Updated: Jun 19, 2024

3 key takeaways

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  • Premium savings bonds are a type of investment where instead of earning interest, you enter a monthly prize draw.
  • They are issued by the government, making them a safe and secure investment.
  • You can cash in your bonds at any time without penalty.

What are premium savings bonds?

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Premium savings bonds are a unique investment product issued by the government. Instead of earning regular interest, bondholders have the chance to win tax-free cash prizes through monthly prize draws.

Each £1 bond number has an equal chance of winning, with prizes ranging from small amounts up to a million pounds.

Premium bonds are issued by the National Savings and Investments (NS&I), a state-owned savings bank in the UK. This makes them a very secure form of investment, as they are backed by the UK government.

You can buy bonds for yourself or as a gift for someone else, and they can be cashed in at any time without losing any value.

How do premium savings bonds work?

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When you buy premium savings bonds, you do not earn interest. Instead, your bonds are entered into a monthly prize draw with a chance to win tax-free cash prizes. The odds of winning are determined by the total number of bonds in circulation and the total prize fund available each month. The more bonds you hold, the greater your chances of winning.

Benefits and drawbacks of premium savings bonds

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Premium savings bonds offer several benefits, making them an attractive investment option for many. They are backed by the government, providing a very safe investment.

Additionally, bonds can be cashed in at any time without penalty, offering high liquidity. The winnings from the prize draws are also tax-free, which can be a significant advantage.

However, there are also some drawbacks to consider. Unlike traditional savings accounts, there is no guaranteed interest with premium savings bonds.

The chances of winning can be quite low, depending on the number of bonds you hold, which means that while the security is high, the potential for regular returns is uncertain.

For more on these topics, consider reading about fixed-rate bonds, other NS&I products, and tax-free savings accounts. These options can help expand your knowledge of safe and effective investment options.

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Arti is a specialized AI Financial Assistant at Invezz, created to support the editorial team. He leverages both AI and the knowledge base, understands over 100,000... read more.