premium bonds advantages and disadvantages

Premium Bonds have been offered by National Savings and Investments (NS&I) since 1957. They are a way of saving, without incurring risk, as NS&I are a part of the Government and are backed by HM Treasury.

Interest is not earned on Premium Bonds, but a prize draw is held each month with payouts ranging from £25 to £1 million.

Every bond costs £1 and each has a unique reference number which is entered in the draw. That means that you could potentially win a prize every month for every pound you have invested (though it is highly unlikely).


Premium Bonds are only available for people aged 16 and over. However, they can be purchased on behalf of children, grandchildren and great grandchildren and held by the adult until the child’s 16th birthday.

Each investment in Premium Bonds must meet the minimum purchase, this is:

  • £100 for online or cash investments
  • £50 for standing order investments (existing customers only)

You may hold a maximum of £50,000 in Premium Bonds.


Premium Bonds were a hot topic in 2008. The credit crunch meant that people were looking for a safer way to save, and with Government backing, Premium Bonds cannot lose their capital value. The added potential to win more money also drew people to the product.

There are currently 74 billion valid Premium Bonds and each month, around three million of those win a prize.

Potential returns

Prizes range from £25 to £1 million, with more lower value prizes being awarded than high amounts.

It is important to remember that you are not guaranteed to win anything. The “average rate of return”, currently 1.4%, is based on the monthly prize pool.

However, it’s not as simple as thinking that if you buy Premium Bonds you will see a return of 1.4%. There are numerous calculations involved in working out your exact chances of seeing prize money that meets that value, but we estimate that you need to hold around £20,000 worth of bonds to get close to the average return.

You can use this calculator to see your chances of winning and potential returns.

Advantages and Disadvantages

Are Premium Bonds worth investing in? That decision is up to you. Before making any commitments, it is worth looking at the option from all angles:

Disadvantage: No interest:

If your Bonds are not chosen in the monthly prize draw, you will not see any returns on your investments at all.

Advantage: The potential to win big:

Everyone likes the idea of winning a big prize! With the chance to win £25 to £1 million for each Bond you hold, the excitement alone is enough to attract some investors.

Disadvantage: Low odds:

While the calculations necessary for working out how likely you are to win are very complicated, it is currently estimated that the chance of winning any value of prize is 1 in 24,500, for each individual Bond held.

Advantage: No risk of losing money:

Premium Bonds are supported by the Government and there is no way to lose money. The worst-case scenario is that the bonds purchased are never chosen in a prize and the amount in the account remains the same.

Disadvantage: Losing value instead:

Though the numerical value of your savings cannot decrease unless you make a withdrawal, the real-term value of it can. The rising cost of living means that a consistent investment value, which does not rise, will lose buying power over time.

Advantage: Tax-free returns:

Savings are always tax-free and that’s one major advantage for the bonds – higher rate and even basic rate payers can invest large sums with no tax liability.

Disadvantage: No longer unique:

Since the introduction of the Personal Savings Allowance in 2016, most savers do not see any tax liability on their returns. That means that savers can utilise vehicles which offer better returns and a lack of tax is no longer a unique or redeeming feature.

Advantage: Instant access:

Premium Bonds are provided under a government guarantee to buy them back at the price you purchased them. That means that you can withdraw your investment at will and know that you will not face any type of punitive charges for doing so.

Disadvantage: Initial delays:

Bonds purchased are entered into their first prize draw after they have been held for a full prize cycle. That means that Bonds bought during March will be held back until the May prize draw. That means that, borrowing from your Premium Bonds could mean that you miss a winning month.

If you are still trying to decide whether Premium Bonds could be the right choice for you, we’re here to help. By aligning your financial goals with your current situation, we can help you to make the best decisions to meet your aspirations.

To talk about it, get in touch with us on 01664 77 88 99.