Premium Bonds: How They Work, Limits and Prizes
Premium Bonds from National Savings and Investments (NS&I) do not pay interest. Instead, each £1 Bond is entered into a monthly prize draw, with tax-free prizes from £25 up to £1 million. You can hold from £25 to £50,000 in total. They are easy-access savings: you can cash in all or part of your holding at any time, though returns depend entirely on whether you win prizes rather than a guaranteed rate.
How Premium Bonds work
According to NS&I, Premium Bonds are a savings product where luck, not interest, determines what you might receive. An annual prize fund rate funds the monthly draw. The prize fund rate, individual prize values, the odds of winning and how prizes are allocated are variable and can change at any time. NS&I also notes that inflation can reduce the real value of your money over time.
Anyone 16 or over with a UK bank account can buy Premium Bonds. Each holder receives a holder’s number that links all their Bonds. You can buy more Bonds at any time, subject to the minimum and maximum limits.
Because there is no interest, Premium Bonds behave differently from cash in a bank or building society account. Other savings options are covered in the savings hub. Interest on ordinary savings may be partly or wholly covered by the Personal Savings Allowance, while deposit protection for money in authorised firms is explained in our guide to FSCS protection.
How much you can hold
The minimum investment is £25 each time you add money. The maximum you can hold is £50,000 across all your Premium Bonds.
Transfers that would take you over £50,000 are automatically refunded in full. Bond numbers above the limit do not qualify for prizes.
You can hold Premium Bonds alongside other savings products, including ISAs. A Lifetime ISA follows separate rules and limits.
The prize draw
Every month, NS&I runs a prize draw. Winning numbers are generated by ERNIE, NS&I’s random-number generator. Every £1 Bond has the same chance in that draw; holding more Bonds means more entries and therefore more chances to win, but no guarantee of any prize.
Bonds must be held for a whole month before they enter the draw. NS&I’s example is clear: Bonds bought at any time in November are first eligible for the draw in January.
You can choose to have prizes reinvested automatically into more Bonds, as long as your total holding stays at or below £50,000.
Tax on prizes
Prizes from Premium Bonds are free from UK Income Tax and Capital Gains Tax.
That tax treatment is separate from how interest on other savings is taxed. Cash ISAs and some other NS&I products are usually outside the scope of savings interest tax as well, which is why it helps to understand the Personal Savings Allowance if you also hold taxable savings accounts.
Cashing in
NS&I describes Premium Bonds as easy access. You can cash in all or part of your Bonds at any time.
You can cash in online using your holder’s number and UK bank details, or by post using a cashing-in form from NS&I.
Buying for a child
Premium Bonds can be bought for a child under 16. A parent or guardian must be nominated to manage the Bonds until the child turns 16, when the child can take over the holding.
The same £50,000 maximum applies to the child’s holding.
Frequently asked questions
Do Premium Bonds pay interest?
No. According to NS&I, Premium Bonds do not earn interest. Prizes come from an annual prize fund rate that funds the monthly draw. That rate, prize values, odds and how prizes are split can change at any time.
When do new Bonds enter the prize draw?
Bonds must be held for a whole month before they qualify. NS&I gives the example that Bonds bought at any time in November first enter the draw in January.
Are Premium Bond prizes taxed?
Prizes are free from UK Income Tax and Capital Gains Tax, so you keep the full amount if you win.
Can I buy Premium Bonds for a child?
Yes. They can be bought for a child under 16, with a nominated parent or guardian managing them until the child turns 16. A child cannot hold more than £50,000 in Premium Bonds.
What happens if I hold more than £50,000?
The maximum holding is £50,000. Transfers that would take you over the limit are automatically refunded in full, and Bond numbers above the limit are not eligible for prizes.
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Disclaimer: This article is general information and not personal financial, tax or legal advice. Check your own situation with HMRC, GOV.UK or a regulated adviser.