Are Premium Bonds still a good investment in 2026?

Premium Bonds differ from traditional savings accounts as they don’t pay interest. Instead, they offer the chance to win monthly cash prizes ranging from £25 to £1 million.

You can invest as little as £25 up to a maximum of £50,000, and each £1 bond is entered into a monthly prize draw.

The minimum £25 investment has a 1 in 880 chance of winning a prize in any given month, and the more you invest, the better your odds of winning a prize.

Every month, two bondholders receive the top prize of £1 million, though the odds of winning this with the minimum investment are smaller than 1 in 2.7 million

Meanwhile, around 2.6 million people win £25, alongside a range of prizes in between. All prizes are tax-free.

The current mean annual prize rate is 3.6%. However, this figure represents the sum total of all winnings divided by the number of bonds, so it is skewed by a small number of large wins.

A more representative measure is the experience of the median Premium Bond holder. If you lined up all Premium Bond holders from the biggest winners to those who have won nothing, the median holder sits right in the centre, and they typically win nothing in a given year.

In fact, according to MoneyWeek, around two-thirds of bondholders have never won a prize.

Despite the relatively low probability of winning a prize, Premium Bonds remain popular because of their unique benefits.

For example, compared with investments, Premium Bonds are highly secure. Your money is protected at its original value, meaning you’ll never receive less than you invested, and you’re not exposed to market volatility.

While many cash savings accounts also offer security, Premium Bonds are highly flexible. You can withdraw your money from them quickly, easily, and without a penalty, which gives them a slight edge over some fixed-term savings accounts.

In addition, Premium Bonds offer the chance (however small) to win big prizes that are entirely tax-free, which is an appealing feature for many.

Despite their benefits, Premium Bonds typically don’t offer strong returns, unless you get lucky, and it’s important to understand their limitations before using them as a savings vehicle.

As you saw earlier, the odds of winning are very low, meaning that for most holders, Premium Bonds effectively serve as a 0% interest savings account.

Even small prize wins are unlikely to keep pace with inflation, so the real value of your money held in Premium Bonds is likely to decline over time.

The mean prize rate is currently 3.6% and inflation has frequently been higher than that in recent years. So, even if you won at the mean rate, which is unlikely, your money could still be at risk of losing real value.

As you’ve seen, money held in Premium Bonds is likely to lose real value over time.

That said, there are situations where Premium Bonds can still play a useful role in your financial plan, and an independent financial planner can help determine whether they make sense for your circumstances.

For example, they may be suitable if you need secure, easily accessible cash and have already used your main tax-efficient savings allowances. Currently, these include:

• The £20,000 ISA allowance – This can be spread across different types of ISAs. However, from 2027, those under 65 will only be able to hold £12,000 in Cash ISAs, with the remaining £8,000 reserved for investment ISAs.
• The Personal Savings Allowance of up to £1,000 – This allows basic-rate taxpayers to earn interest tax-free. The allowance falls to £500 for higher-rate taxpayers and is not available to additional-rate taxpayers.

If you’ve fully used these allowances but still want to hold cash securely and with quick access for your short-term goals and needs, Premium Bonds may be worth considering.

The upcoming changes to ISA rules could also make them more relevant for people on higher incomes who want to hold a larger proportion of their savings in cash.