Chartered accountant Alex King, founder of Generation Money, has told Premium Bonds customers to review their savings plans after the Autumn Budget introduced changes that make the luck-based scheme a "more attractive" option. The tax-free nature of all Premium Bonds prizes is a key benefit for savers.
Budget change boosts appeal
The Government announced in the Autumn Budget an extra two percentage point uplift in the rate paid on taxable interest savings. This is on top of the two percentage point hike already planned for April 2027. In contrast, Premium Bond holders do not have to pay tax on their winnings.
Mr King said: "Higher tax rates emphasise the importance of understanding what interest you are earning and where your money is being saved." He added: "Premium Bonds are becoming more attractive, particularly for higher-rate taxpayers who have used their personal savings allowance."
Tax-free winnings explained
Mr King noted that all other forms of savings interest outside ISAs will be subject to taxation at 24 per cent, 44 per cent or 49 per cent from April 2027, whereas Premium Bonds winnings are completely tax free. Savers can hold up to £50,000 in Premium Bonds, with each £1 Bond having the same odds of winning in the monthly draw, currently 21,000 to one.
There are always two £1 million prizes each month, along with large prizes for amounts such as £100,000 or £50,000. For those deciding how to adjust their savings portfolio, Mr King advised: "Consider the potential return, your ability to withdraw funds from each option, and your current tax situation when making your decision regarding where to save."
Building savings tax-free
Key rules for building a nest egg without triggering a tax bill include the annual ISA allowance, which allows deposits of up to £20,000 per tax year into cash and stocks & shares ISAs with growth free from tax. The personal savings allowance outside ISAs gives basic rate taxpayers up to £1,000, higher rate taxpayers £500, and additional rate taxpayers no allowance.
From April 2027, the increase of four percentage points on taxable savings interest earnings will push rates to 24 per cent for basic rate payers, 44 per cent for higher rate payers, and 49 per cent for additional rate payers.
Consistent saving habits
Research from banking app bunq found that almost nine in 10 UK adults view themselves as savers, yet 5 per cent save nothing whatsoever, and nearly one in four set aside less than five per cent of their earnings. Roughly a third of savers report that their contributions slow down in November and December.
Joe Wilson, chief evangelist at bunq, highlighted the value of automated, year-round habits. He said: "Nobody should have to choose between a good Christmas and a safety net. You build it across the rest of the year. You set the rule once and it keeps running: a little put aside with every payment, interest on top, all of it adding up while you're creating new memories with the people you love."
