Three very different results show there’s no guarantee
Even though we’ve had some of the best savings rates in years, Premium Bonds remain popular. Even though there’s no guarantee in what you could win, people hope they might get lucky and net big prizes – especially if they have a lot of cash invested.
To get an idea of how that pans out, I asked three people with the maximum £50,000 saved what they won in a year. Though your own situation will differ, it’s a great way to understand what your chances are.
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What are Premium Bonds?
Unlike a savings account where you get a guaranteed return on your deposits – known as an interest rate – Premium Bonds instead have a Prize Rate.
This looks like an interest rate, but it actually represents how much of the total invested is given out in prizes. These prizes range from £25 to £1 million. Here’s more on how they work.
What would you hope to win in a year?
In the last year, the prize rate has actually changed three times, starting at 4.65%, and going down to 4.4%, before dropping to 4.15% for the most recent draw (it’s due to fall again to 4% in January 2025).
- January and February 2024 draws – 4.65% prize rate
- March to November 2024 draws – 4.4% prize rate
- December 2024 draw – 4.15%
If you add that all together it gives an average prize rate of 4.42%. That means that someone with the full £50,000 will hope to get a return of £2,210 in a year.
It’s worth noting though that the likelihood of getting close to this rate reduces if you have less money held in PBs as you’ll effectively have fewer entries in to each draw, and therefore fewer chances of winning.
Still, the prize rate is a useful shorthand for those with average luck. But would you have average luck?
How much did £50k win over a year?
A few years ago, when savings rates were particularly poor, I had £10,000 in Premium Bonds for a full 12 months. And my experience in that time was pretty good. I actually beat the then rate of 1%.
But since interest rates elsewhere have improved I’ve only had money in PBs (as I like to call them) on and off – effectively those months when the prize rate was decent, but moving the cash when it was beaten.
Then in the summer I wrote about some friends who had kept the full £50,000 cash in Premium Bonds for a year. We’ll call them saver one, saver two and saver three! Here’s the total they won and their effective win rate
| July 23-June 24 | Saver 1 | Saver 2 | Saver 3 |
| Total wins | £1,425.00 | £2,950.00 | £2,225.00 |
| Effective rates | 2.96% | 6.12% | 4.61% |
Bizarrely, the average of saver one and two almost matched the returns for saver three, which was practically the average official prize rate for the year!
So six months on, how have things changed? This is an update looking back at the whole year of January to December 2024 for those same three people, broken down month by month.
| Saver 1 | Saver 2 | Saver 3 | |
| January 2024 | £225.00 | £125.00 | £375.00 |
| February 2024 | £50.00 | £25.00 | £50.00 |
| March 2024 | £125.00 | £1,000.00 | £175.00 |
| April 2024 | £50.00 | £0.00 | £125.00 |
| May 2024 | £200.00 | £275.00 | £175.00 |
| June 2024 | £275.00 | £300.00 | £75.00 |
| July 2024 | £150.00 | £275.00 | £100.00 |
| August 2024 | £0.00 | £200.00 | £200.00 |
| September 2024 | £150.00 | £100.00 | £10,075.00 |
| October 2024 | £250.00 | £1,200.00 | £125.00 |
| November 2024 | £225.00 | £25.00 | £225.00 |
| December 2024 | £150.00 | £150.00 | £50.00 |
| —- | —- | —- | |
| Total wins | £1,850.00 | £3,675.00 | £11,750.00 |
| Effective rate | 3.70% | 7.35% | 23.50% |
You can see just how random it is. Savers one and two had one month with no wins, while saver three had a month with a huge £10,075.
Overall, saver one fared worst, getting way below the average prize rate of 4.42% with a poor 3.7% return, whereas saver two knocked it out of the park with a massive 7.35% return.
Howevever, both did better in this period than the year before, despite an almost identical average official prize rate!
Meanwhile the third saver’s huge £10,000 prize skewed their effective rate to 23.5% annual return. Now, if you swapped that big win out for the average of all their other prizes at £150, their average drops down massively to 3.65%. That would actually be down on their July 2023 to June 2024 average of 4.61%. Though of course they did win the big prize.
Why are the results so different?
Forget the rumours how newer bonds are more likely to win, that older bonds are sometimes excluded, that bonds that have already won won’t win again and even that people outside of London are at a disadvantage.
These are all myths. Every single bond, new and old, across the UK, has the exact same chance of winning one of the prizes. The only thing in the favour of these savours is that have more entries thanks to having more bonds.
But ultimately is is just down to luck. Saver two was just a lot luckier than saver one, while saver three was just a little luckier than average.
It’s a great example of when someone wins more than expected, someone misses out. At it’s most extreme in PBs, that’s shown when someone wins really big and many, many people win nothing at all.
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Premium Bonds vs savings on £50k
So, we’ve established you could do well or you could do badly with Premium Bonds compared to the prize rate. But what about if you’d instead put the money in an easy access savings account?
If our savers instead had moved their money from best buy to best buy in that period (a total of six transfers), they’d have got between 4.85% and 5.2%. The average interest rate in the year works out (roughly) as 5.04%, and with £50,000 saved you’d earn an average of £2,520 in guaranteed interest.
That’s better when compared to the average prize rate of 4.42% and winnings of £2,210. Of course, everyone will get a different win rate. In our examples, saver one (a return of 3.7%) was worse off this year with Premium Bonds, while both savers two (7.35%) and three (23.5%) ended up with more from PBs.
However it’s not actually that simple.
Tax on interest
First, you need to account for tax. Premium Bond prizes are tax-free, so there’s no interest on the return. Outside of PBs or ISAs, you are taxed, but you can’t just deduct the tax rate from the interest rate to get a proper comparison.
You also need to factor in the personal savings allowance. Here’s what putting the full £50,000 in to savings at the average rate would really return (remember the Premium Bond total is average luck).
| Amount | Rate | Tax-free | Total interest after tax | Equivalent rate after PSA & tax |
| Premium Bonds | 4.42% | All | £2,210.00 | 4.42% |
| Non taxpayer | 5.04% | All | £2,520.00 | 5.04% |
| Basic rate taxpayer (20%) | 5.04% | £1,000 | £2,216.00 | 4.43% |
| Higher rate taxpayer (40%) | 5.04% | £500 | £1,711.00 | 3.42% |
| Additional rate taxpayer (45%) | 5.04% | £0 | £1,386.00 | 2.77% |
So in this instance, it still appears that Premium Bonds would have given same return for basic rate tax payers, and the best return over this period for both higher and additional rate tax payers. I know that my friend saver one is a higher rate payer, so in reality his 3.81% Premium Bond return is better than what he’d have got elsewhere after tax.
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A mix of PBs, ISAs and savings
However, in reality, a better combination could be to put £20,000 into normal savings at a 5% to earn £1,000 of tax free interest (or £10,000 to earn £500 for a higher rate taxpayer), and another £20,000 into an ISA at a similar rate, and then put the rest into Premium Bonds.
Sadly we can’t ever calculate the true returns here as it’s likely that someone with £30,000 or £40,000 in PBs will win less than someone with £50,000 there. However, if we keep the average prize rate at 4.38%, and combine it with the other tax-free returns, it could look like this.
| Savings in PBs after PSA and PBs | Rate | Prizes | Interest elsewhere | Total interest | Equivalent rate |
| £10,000.00 (basic rate taxpayer) | 4.42% | £442.00 | £2,000.00 | £2,442.00 | 4.88% |
| £20,000.00 (higher rate taxpayer) | 4.42% | £884.00 | £1,500.00 | £2,384.00 | 4.77% |
Without doubt, the combination is giving the best overall returns on money – for someone with average luck.
And if we put in a bad (though not worst case) scenario where the prize returns were just 1.5% on the additional cash in Premium Bonds, you’d still match returns after tax for a basic rate taxpayer who put everything in easy-access savings and beat it as a higher rate taxpayer.
| Savings in PBs after PSA and PBs | Rate | Prizes | Interest elsewhere | Total interest | Equivalent rate |
| £10,000.00 (basic rate taxpayer) | 1.5% | £150 | £2,000.00 | £2,150 | 4.3% |
| £20,000.00 (higher rate taxpayer) | 1.5% | £300 | £1,500.00 | £1,800 | 3.6% |
So, if you’re after a guaranteed return rather than rely on luck, you’re still better off using your PSA and ISAs allowances first.
Of course, additional rate taxpayers only get the ISA tax-free returns, so they’d be better off with PBs over other savings with savings of this size.
Earning interest on the prizes
Another factor to consider is you can’t reinvest prizes into PBs if you already have the full £50k saved. Which means our three savers all (hopefully) moved their winnings into a high paying account to keep earning, perhaps as much as 7% via regular saver, then they’d earn more on top – even if tax was potentially due on that.
Are Premium Bonds worth it?
Andy’s analysis
As demonstrated, there’s no guarantee you’ll do well with Premium Bonds. Despite two of our savers outperforming other savings products with their bonds, I still think getting a guaranteed savings rate that beats the prize rate is better than the slim likelihood of winning big. Especially if you have smaller amounts where your chances of winning greatly decrease.
But, there are times when they’re worth a shot. More relevant to now is for those with large sums saved up. If you’re already filling your personal savings allowance (or if you don’t get one) and have maxed out the annual ISA allowance (perhaps in stocks and shares rather than cash), Premium Bonds can be a good option.
And as I experienced before the base rate hikes boosted savings rates, there can be occasions where Premium Bonds net you more cash. That was especially the case when savings rates were below 1%. However, it’s unlikely we’ll go back to those levels any time soon, if at all.
Im completely baffled by all this, but like to know how to invest and learn about premium bonds. I have funds that i would like to invest, but with internet these days, im very wary of possible scams.
I never fully understand how Premium Bond Winnings are ‘Tax Free’! Unless you spend any winnings (or give them away) you’re very likely to put them into a savings account where tax IS fairly certain these days.
It would be a nice problem to have to deal with of course – particularly if a £1million cheque arrived!
Yes but you’d only pay tax on the interest on the winnings, not the winnings themselves.