In the UK, Premium Bonds have long been a popular savings option, offering the thrill of potentially winning substantial prizes without the risk of losing your initial investment. However, recent data reveals a stark reality for many bondholders: the odds of winning significant prizes have drastically decreased, leading experts to urge savers to reconsider their strategies.
The odds of winning the coveted £1 million jackpot from National Savings and Investments (NS&I) now stand at an astonishing one in 22 million for every £1 unit of bonds held in a single month. The likelihood of winning at least £50,000 has also dropped to the same odds, while winning £10,000 is now a near-impossible feat, with odds of nearly four million to one. Even the smallest prize of £25 has odds of one in 880 in any given month, making it clear that the chances of winning anything substantial have diminished significantly.
According to Rachel Springall, a finance expert at Moneyfactscompare.co.uk, "It’s disappointing that the chances of winning have decreased over time, but Premium Bonds will remain a popular choice for many savers." This sentiment is echoed by Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, who noted that while the chances of winning big may be getting smaller, the allure of the £1 million prize will continue to tempt many savers.
Premium Bonds are the UK's largest savings product, with over 24 million individuals holding more than £130 billion worth of bonds. However, the prize rate has seen a series of reductions, declining from 4.4% in November to 4% in January's draw, and now standing at 3.8% for April's draw. Myron Jobson, senior personal finance analyst at Interactive Investor, stated, "Premium Bonds are ultimately about luck, not strategy. While they may appeal to those seeking the thrill of a life-changing prize, savers would be wise to explore more reliable savings options that offer more consistent returns."
From April's draw onward, the prize fund rate dipped from 4% to 3.8%, which translates to a likelihood of winning with each £1 Bond now standing at 22,000 to one. Rezaah Ahmad, CEO of investment platform WiseAlpha, cautioned that the average return of 3.8% is skewed by a few big winners, with most bondholders likely to earn less, estimating the median return closer to 3.3%. He explained, "For higher-rate taxpayers, Premium Bonds can be particularly appealing. To match a median Premium Bond return of 3.3% after tax, a 40% taxpayer would need a deposit equivalent yield of 5.5%."
Ahmad also pointed out that while Premium Bonds may suit those looking to preserve their capital over the short term, they may not be the best choice for savers seeking strong, inflation-beating returns over a longer period. For those who have maxed out their personal savings allowance and their £20,000 ISA limit, Premium Bonds can be attractive since all winnings are tax-free, a significant perk if one wins a substantial prize.
However, for those contemplating cashing in their bonds for potentially better returns elsewhere, Ahmad offered several alternatives to consider. High-interest savings accounts or fixed-term savings bonds can provide rates exceeding 5%, especially if savers are willing to lock in their funds for a year or longer. Cash ISAs also offer a completely tax-free way to save, with no tax due on interest or investment gains within the ISA wrapper.
Gilts, or government bonds, are another option, exempt from capital gains tax, though income tax is payable. These can yield attractive returns, potentially offering deposit equivalent yields of 6.22% and even 7.49% for additional rate taxpayers. However, Ahmad cautioned that accessing cash from gilts requires selling the bonds, which can be subject to fees and may not complete immediately. Corporate bonds can also work for savers seeking a fixed, higher income over time, typically offering a set interest rate and maturing over several years.
The stark reality for many Premium Bond holders is that two-thirds of them have never won a prize. According to data shared with investment platform AJ Bell, more than 14.3 million savers have not won anything since 1994. Out of 22.5 million holders, only five million won a prize between March 2024 and February 2025, with 80% of those winners claiming more than one prize.
The average holding among winners was £23,397, while the average holder had just £5,406 in their account. This disparity highlights how those with larger investments are more likely to win, further emphasizing the lottery nature of Premium Bonds.
In April's draw, there were four fewer £100,000 prizes than in the previous draw, decreasing from 82 to 78. Additionally, there were 157 £50,000 prizes, down from 164 in February, along with 15 fewer £25,000 prizes and 39 fewer £10,000 ones. Charlene Young, a senior pensions and savings expert at AJ Bell, noted, "While there has been a recent shift to most winners receiving prizes of £50 or £100, instead of the lowest £25 on offer, the vast majority of winning prizes in 2024 were still worth £100 or less."
As the prize fund rate currently sits at 3.8%, with odds of winning a prize in the draw at 22,000 to one, many are left questioning whether Premium Bonds are still a viable savings option. The NS&I has cut the prize fund rate multiple times, from 4.4% in December 2024 to 4% in January 2025, and now to 3.8%.
For savers weighing their options, it's crucial to consider the likelihood of winning against the potential returns of more traditional savings accounts. As the data suggests, relying solely on luck may not be the best financial strategy in the long run.
