Comparison · Savings · 2026
Cash ISA vs Premium Bonds 2026: Which Pays You More?
A Cash ISA pays a guaranteed, tax-free rate, so you always know what you will earn. Premium Bonds pay nothing directly and instead enter you into a tax-free monthly prize draw, where the average return is set by the NS&I prize fund rate but your own result could be higher or much lower. For 2026/27 the right choice depends on how much you hold, whether you already pay tax on savings interest, and how much you value certainty versus the chance of a windfall. This comparison works through the numbers and the trade-offs.
TL;DR - 30-Second Summary
- - Cash ISA: guaranteed tax-free interest on up to £20,000 a year
- - Premium Bonds: tax-free prize draw, no guaranteed return, up to £50,000
- - For certainty: the Cash ISA usually wins on a typical holding
- - For NS&I safety above £85,000 or a tax-free windfall: Premium Bonds appeal
Side by Side
| Feature | Cash ISA | Premium Bonds |
|---|---|---|
| Return | Guaranteed interest rate | Prize draw, no guarantee (check current NS&I rate) |
| Tax | Tax-free, no PSA used | Prizes tax-free |
| Maximum holding | £20,000 ISA allowance per year | £50,000 total |
| Protection | FSCS up to £85,000 | 100% HM Treasury backed |
| Access | Varies, easy access or fixed | Withdraw anytime |
| Best for | Reliable tax-free return | Windfall chance, large balances |
Worked Example: £20,000 for a Year
Suppose a Cash ISA pays 4.5% and the NS&I prize fund rate is also around the same level. With £20,000 the Cash ISA earns a known amount, while Premium Bonds earn whatever you win.
| Option | Headline rate | Result on £20,000 |
|---|---|---|
| Cash ISA (guaranteed) | 4.5% | £900 tax-free, certain |
| Premium Bonds (average) | Check NS&I rate | Around the average for a typical holder, but possibly £0 or much more |
The Cash ISA gives £900 with certainty. Premium Bonds at a similar headline rate give the same average across all holders, but most people with a smaller balance earn below that average, because the prize fund is skewed by a few large wins. The bigger your holding, the closer your result tends to land near the average. Model the guaranteed side with the savings calculator.
The Tax and Safety Angle
Both options are tax-free, so the tax advantage of a Cash ISA only matters relative to ordinary taxable savings. If your other interest already breaches your Personal Savings Allowance, both a Cash ISA and Premium Bonds shelter money from tax. On safety, a single Cash ISA is protected by the FSCS up to £85,000, while Premium Bonds are backed in full by HM Treasury with no cap.
For savers with large cash balances, Premium Bonds can hold up to £50,000 with full government backing, which is useful if you have already used your ISA allowance and want to avoid spreading money across many banks to stay under the FSCS limit.
Who Should Choose What
- - You want a guaranteed, tax-free return
- - You are sheltering savings interest from tax
- - You value knowing exactly what you will earn
- - Your balance is within the £85,000 FSCS limit
- - You have already used your ISA allowance
- - You hold large balances and want NS&I safety
- - You like the chance of a tax-free windfall
- - You can accept some years with no return
Verdict
For most savers seeking a reliable home for cash, a Cash ISA wins because the return is guaranteed and tax-free. Premium Bonds are best seen as a complement rather than a replacement: ideal once you have used your ISA allowance, for higher-rate taxpayers who want a tax-free option, and for anyone wanting full government backing on a large balance. If you enjoy the chance of a prize and can accept lean years, holding some Premium Bonds alongside a Cash ISA gives you both certainty and a small shot at a windfall. Always check the current NS&I prize rate before deciding.