Martin Lewis has explained when Premium Bonds can be a good choice for building savings, saying they become "decent value" for higher earners despite his general reservations about the NS&I scheme.
The consumer expert discussed the topic on his BBC podcast after a caller asked for advice on managing their finances. The caller, a lawyer in the additional rate tax bracket earning more than £125,140 a year, wanted to know what rules to follow as they looked to build their savings prudently.
Why Premium Bonds suit additional rate taxpayers
Responding to the question, Mr Lewis said Premium Bonds are worth a look for someone in that position. He said: "For someone like you, ISAs and Premium Bonds become even far better value. ISAs, far better value; Premium Bonds become decent value. And the reason is, of course, you do not have a personal savings allowance."
The personal savings allowance sets how much interest you can earn from savings accounts each tax year without paying tax. Basic rate taxpayers can earn up to £1,000 each year, higher rate taxpayers up to £500, and additional rate taxpayers get zero allowance.
This makes the tax-free nature of ISAs and Premium Bonds particularly attractive. Interest or investment growth within an ISA is tax-free, and any Premium Bond prizes never incur an HMRC bill.
The £5,000 threshold for better returns
The risk with Premium Bonds is that there is no guarantee of winning a prize, and if you do not win, the value of your holdings stays the same. That means purchasing power drops because of inflation, and you miss out on growth you could have had in a savings account or investments.
But Mr Lewis said they can be a good choice if you have a decent amount invested. He told the listener: "You'll know I'm not generally the biggest fan, but the Premium Bond prize fund rate is 4.35%. If you're putting a decent whack in, so getting close to the £50,000, but really anything above £5,000, £6,000, £7,000, then you're going to be earning roughly, based on typical luck, the median average payout will be somewhere in 3.5%, 3.6%, 3.7%, which actually, compared to normal savings, which would be taxable for you is actually a much better rate than you're going to get anywhere else barring an ISA, if you're using savings for an ISA."
Each £1 Bond in the monthly prize draw has the same chance of winning, with odds currently at 21,000 to one.
Budget tax changes to consider
If you pay tax on interest earnings, changes announced in the Autumn Budget 2026 by Chancellor John Healey are worth factoring in. The tax rate was already set to increase by 2 percentage points across all tax bands from April 2027, and the Government has added another 2 percentage points on top. This means from April the rates will rise from 20 per cent to 24 per cent for basic rate taxpayers, from 40 per cent to 44 per cent for higher rate taxpayers, and from 45 per cent to 49 per cent for additional rate taxpayers.
The podcast is available in full on the BBC Sounds website.
