National Savings and Investments (NS&I) has raised its Premium Bonds prize fund rate to 4.35% from 3.3% three months ago, and improved the odds of winning from 23,000 to 21,000 to one for every £1 bond, as the state-owned bank seeks to attract savers' cash and meet its £15billion net financing target for 2026/27.
Why NS&I is boosting rates
Caitlyn Eastell, Personal Finance Analyst at Moneyfactscompare.co.uk, said NS&I appears to be "pulling out the stops to attract savers’ cash." She noted that with a £15billion net financing target, the bank needs to raise funds to help meet the Government’s funding requirements. Having delivered just £1billion in the first quarter, NS&I has a clear incentive to make its offerings more attractive, she added.
Ms Eastell said Premium Bonds can make a fun addition to a wider savings strategy, with the excitement of a potential tax-free prize, but cautioned they should not be relied on as the only home for savings because returns are never guaranteed. She said whether now is the right time to invest depends on what savers want from their money, adding: "The prospect of a big tax-free prize may be appealing, but savers should consider whether the chance to win is worth giving up a predictable return."
Alternatives and expert views
Other options include fixed-rate Cash ISAs, which currently offer rates above 5%, and easy-access ISAs with rates in excess of 4.50%. Ms Eastell said such accounts would give savers a more predictable return than Premium Bonds.
Nouran Moustafa, Independent Financial Advisor at Roxton Wealth, said now is a much better time to consider Premium Bonds than a few months ago, but she would not automatically call them the best savings account. She said: "Premium Bonds become particularly interesting for people who value 100% government-backed security, easy access and tax-free prizes, especially where savings interest elsewhere could become taxable." She added: "So yes, Premium Bonds are more attractive, but excitement should never be confused with guaranteed interest."
Ross Lacey, Director of Fairview Financial Management, said Premium Bonds are a great way to save, and his business always recommends keeping some money in cash or Premium Bonds to cover times when savers don't want to dip into their pensions or investments when the stock market falls. He added that although there are no guaranteed prizes, the rate of return for an average Premium Bond holder is not too dissimilar from a savings account, with prizes being tax-free, which is particularly attractive for Higher Rate and Additional Rate taxpayers. He also noted the potential for much higher returns, with two £1million winners each month. However, he said over the longer term, it's worth considering other ways to grow savings, as neither Premium Bonds nor cash accounts will consistently keep pace with inflation.
Tax considerations and draw data
Harvey Dhillon, Founder and CEO of Zmartly, said Premium Bonds look better now than they did in the spring, but added: "NS&I can cut the rate at any time, so nobody can promise this is the best moment to buy." He noted that from April 2027, tax on savings interest rises in every band while prizes remain tax-free under current rules, which matters most to higher earners. He added: "If your interest is already covered by your tax-free allowance, the tax case for Premium Bonds is much weaker."
An NS&I spokesperson said Premium Bonds remain one of the nation's favourite savings products and are a flexible way to save, offering the excitement of potentially winning tax-free prizes every month, while providing 100% security backed by HM Treasury and easy access to withdrawals. The spokesperson added: "Every £1 Bond has an equal chance of winning in each draw, with millions of prizes paid out every month."
In October's Premium Bonds draw, a total of 137,483,797,618 £1 Premium Bonds were entered, with 6,546,849 tax-free prizes worth £498,378,775 paid out, including two £1million prizes, 96 £100,000 prizes and 191 £50,000 prizes. As of March last year, £133.2billion was invested in Premium Bonds by 22.7 million customers.
