Glossary · UK
What is Premium Bond?
A UK savings product from NS&I where instead of interest, bondholders enter a monthly prize draw offering tax-free prizes from GBP 25 to GBP 1 million.
Full Definition
Premium Bonds are issued by NS&I (National Savings and Investments), which is backed by HM Treasury and therefore carries 100% government guarantee with no FSCS limit cap. Bondholders purchase bonds in multiples of GBP 1 (minimum holding GBP 25, maximum GBP 50,000). Each GBP 1 bond constitutes one entry in the monthly prize draw. Prizes are entirely tax-free and range from GBP 25 to GBP 1 million (two GBP 1 million prizes per draw). The prize fund is set as an annual rate against the total bond fund -- the effective prize rate in mid-2026 is estimated at approximately 4.4% (tax-equivalent). However, the prize rate is probabilistic: a GBP 50,000 holding has approximately 99% probability of winning at least one GBP 25 prize per year, but expected return follows a skewed distribution. For basic-rate taxpayers with savings income within the Personal Savings Allowance, Cash ISAs and fixed-rate bonds may offer a more predictable return. Premium Bonds are particularly attractive for: additional-rate taxpayers (no PSA), higher-rate taxpayers close to their PSA limit, or anyone who values the lottery element and guaranteed capital preservation. Bonds are instantly encashable without notice or penalty -- making them a flexible form of cash savings.