Are Premium Bonds better than a savings account in 2026/27?

Full answer

Premium Bonds, run by NS&I, do not pay interest. Instead, each GBP 1 bond is entered into a monthly tax-free prize draw. NS&I publishes a prize-fund rate, but this is an average across all bondholders -- because a few large prizes skew the figure, the typical holder with average luck earns less than the headline rate, and many earn nothing in a given month. The prizes themselves are free of UK Income Tax and Capital Gains Tax. The key comparison is against a normal savings account, which pays a known, guaranteed rate. For most basic-rate taxpayers the first GBP 1,000 of savings interest is covered by the Personal Savings Allowance (GBP 500 for higher-rate taxpayers, nil for additional-rate), so modest savings interest is often tax-free anyway, removing the tax advantage Premium Bonds appear to offer. Who might still prefer Bonds: additional-rate taxpayers with no PSA, people who have used their ISA allowance and want a fully tax-free home for cash, and those who value the chance of a large prize over a guaranteed return. Bonds are also fully backed by HM Treasury, so capital is secure, and you can withdraw at any time. Who is usually better off elsewhere: anyone wanting predictable growth, and savers whose interest stays within the PSA, where a competitive easy-access or fixed account simply pays more on average. A cash ISA (GBP 20,000 allowance for 2026/27) shelters interest from tax permanently. Because Premium Bond outcomes are random, there is no single right answer -- model a guaranteed rate using the savings calculator, then judge whether the chance of a windfall is worth giving up that certainty.

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