As the new year begins, a fresh look at your savings strategy is crucial, especially for the millions of Britons holding Premium Bonds. In 2025, a staggering £5.8 billion was poured into these iconic products from NS&I, backed by the Treasury. Yet, financial experts are urging savers to critically assess whether they remain the right home for their cash in 2026.
The Allure and The Reality of Premium Bond Prizes
Sarah Coles, head of personal finance at Hargreaves Lansdown, notes that Premium Bonds retain a star status due to their unique blend of security, tax-free prizes, and the dream of a £1 million jackpot. However, she highlights a fundamental contradiction: "You’re actually paying for the prizes yourself, because your cash doesn’t earn any interest."
With no interest paid, your return hinges entirely on prize draws. Analysis from AJ Bell presents a sobering statistic: almost two-thirds (63%) of bondholders have never won a prize. When the average bondholder wins nothing in a typical month, the real value of savings can be eroded by inflation.
Who Should Definitely Reconsider Premium Bonds?
The size of your holding dramatically sways the odds in your favour, or against you. Laura Suter, director of personal finance at AJ Bell, states bluntly that those with smaller amounts are far less likely to win. The firm's data reveals a stark divide: the average holding for winners was £23,397, compared to just £106.79 for non-winners.
For the millions with modest balances, the certainty of a competitive easy-access savings account, currently paying around 4.5%, may be wiser than hoping for a lucky draw. On a typical holding of £10,674, that could mean a guaranteed £480.33 over a year, often protected by the Personal Savings Allowance.
Families saving for children are also advised to look elsewhere. With over 77,000 juvenile accounts opened last year, Premium Bonds are popular gifts. Yet, the lack of guaranteed growth means inflation can steadily shrink the real value. A Junior ISA typically offers a far stronger chance of beating inflation over the long term.
When Do Premium Bonds Make Financial Sense?
For a specific group, Premium Bonds retain significant utility. If you have a large cash sum (up to the £50,000 limit) requiring easy access and have already used your annual ISA allowance, they offer a safe harbour where any prizes remain tax-free.
This is particularly valuable for higher earners breaching their Personal Savings Allowance. A basic-rate taxpayer with £22,000 in a 4.5% account would exceed their allowance, while a higher-rate taxpayer hits the limit with just £11,000. Additional-rate taxpayers receive no allowance at all. For them, the tax-free nature of Premium Bond prizes becomes a powerful attraction.
As we advance into 2026, the message from finance professionals is clear: sentiment and the thrill of the draw should not override financial logic. For many, the wider savings market offers stronger, guaranteed returns. It is time to decide if you prefer the dream of a million-pound jackpot or the certainty of a reliable rate.
