Premium Bonds: What a Typical Saver Actually Wins
Premium Bonds are a UK savings product from NS&I that pays no interest: each £1 Bond is entered into a monthly draw for tax-free prizes from £25 to £1 million. The 4.35% prize fund rate is the average paid across all Bonds, not what a typical saver receives.
Premium Bonds are a UK savings product that is easy to compare with a savings account on the wrong number. The headline prize fund rate looks like an interest rate. It is an average across every Bond in the draw, and the prizes that make it up are shared out very unevenly.
This page covers the rules as NS&I states them, then uses NS&I’s own prize table for September 2026 to show what a saver holding £1,000, £10,000 or £50,000 is likely to receive in a year.
How it works
Each £1 is one Bond, and each Bond is a ticket. NS&I enters every eligible Bond into a monthly prize draw. There is no interest. NS&I says the annual prize fund rate “funds a monthly prize draw for tax-free prizes.”
The two numbers NS&I publishes, read on 26 Sep 2026:
- Prize fund rate: 4.35%, variable, the rate used for the September 2026 prize draw.
- Odds: 21,000 to 1 for every £1 Bond in each monthly draw, also variable.
The limits. The minimum purchase is £25 and the most one person can hold is £50,000. Anyone 16 or over with a UK bank account can buy, and Bonds can be bought for a child under 16, managed by a parent or guardian.
A new Bond waits a whole month. Bonds count only after a whole month of holding, NS&I says, so a purchase made at any point in November first enters the January draw.
Prizes run from £25 to £1 million and are tax-free. NS&I states they are exempt from UK Income Tax and Capital Gains Tax. Money can be withdrawn with no notice or penalty, and NS&I says withdrawals take 3 to 5 days to reach a bank account.
How the prize money is split. NS&I divides each month’s fund into three bands: 10% to the higher-value prizes (£5,000 to £1 million, including two £1 million prizes every month), 10% to the medium-value prizes (£500 and £1,000), and 80% to the lower-value prizes (£25, £50 and £100).
A worked example
Take £10,000 held in Premium Bonds for a full year, every Bond eligible for all 12 draws, prizes paid out rather than reinvested.
- Expected prizes a year: £10,000 x 12 / 21,000 = 5.71 prizes.
- Expected value at the prize fund rate: £10,000 x 4.35% = £435.
- Average prize in the September 2026 draw: £497,086,175 / 6,529,868 = £76.12, and 5.71 x £76.12 = £435.
That £435 is an average across all savers, not a forecast for one. Most of the prizes a £10,000 holder wins will be £25, £50 or £100. The average is lifted by the rare £5,000-and-up prizes, which most holders never see. The simulation below shows the typical outcome is closer to £350.
The tax side. For a higher-rate taxpayer who has already used the £500 Personal Savings Allowance, a taxed savings account would need to pay £435 / (1 - 0.40) = £725 on £10,000, or 7.25%, to leave the same £435 after tax. For a basic-rate taxpayer over the £1,000 allowance, the figure is £435 / 0.80 = £543.75, or 5.44%. Those comparisons use the average; against the median the tax-equivalent rates are lower.
The original data
NS&I’s prize table for the September 2026 draw, read on 26 Sep 2026:
| Prize | Number of prizes |
|---|---|
| £1 million | 2 |
| £100,000 | 95 |
| £50,000 | 192 |
| £25,000 | 381 |
| £10,000 | 954 |
| £5,000 | 1,909 |
| £1,000 | 19,882 |
| £500 | 59,646 |
| £100 | 2,365,010 |
| £50 | 2,365,010 |
| £25 | 1,716,787 |
| Total | 6,529,868 prizes, £497,086,175 |
The table checks out against the published rate. 6,529,868 prizes at 21,000 to 1 implies about £137.13 billion of eligible Bonds, and £497,086,175 a month on that sum is 4.35% a year, exactly the stated rate.
98.7% of the prizes were £100 or less, and 26.3% were £25. The 3,533 prizes of £5,000 or more were 0.054% of the count and took 10% of the money. At the top, each £1 Bond had a 1 in 68,563,614,000 chance of a £1 million prize in the draw. A saver holding the full £50,000 for a year had about a 1 in 114,273 chance of one.
Then the draw was simulated. For each holding, 200,000 savers each held their Bonds for 12 draws with the September 2026 table unchanged. Each month, each saver’s number of prizes was drawn at 21,000 to 1 per Bond, and each prize’s value drawn in proportion to the table.
| Holding | Expected prizes a year | Median return | 10th to 90th percentile | No prize at all |
|---|---|---|---|---|
| £1,000 | 0.57 | 0.00% | 0.00% to 10.00% | 56.5% |
| £10,000 | 5.71 | 3.50% (£350) | 1.50% to 6.75% | 0.35% |
| £50,000 | 28.57 | 3.80% (£1,900) | 2.70% to 5.50% | none of 200,000 |
The median sits below 4.35% at every size. Only 32.2% of the simulated £10,000 holders and 31.1% of the £50,000 holders reached the prize fund rate. The average across all simulated savers came close to 4.35% in each case, because a minority of large prizes carries the rest. For £1,000, the exact chance of no prize in 12 draws is (1 - 1/21,000) ^ 12,000 = 56.47%, and the simulation gave 56.5%.
Against inflation. The Office for National Statistics put UK CPI inflation at 3.1% for August 2026, released on 16 Sep 2026. The £10,000 median, 3.50%, was a little above it, and 57.9% of simulated £10,000 holders reached 3.1%. The simulation results are in the holding file and the prize counts in the prize table file.
When it fails
Small holdings are mostly luck. With £1,000, the expected number of prizes in a year is below one, and more than half of holders win nothing. A year of zero is not bad luck in the rare sense; it is the most common result.
The rate is variable, and so is the table. NS&I says the rate, prize values, odds and the way prizes are allocated can all change at any time. The simulation holds the September 2026 table fixed for a year, which it will not be.
Inflation still applies. NS&I’s own page reminds savers that inflation can reduce the true value of money over time. A median return near the inflation rate means little or no growth in what the money can buy, which the inflation and savings page works through.
The tax advantage is uneven. For a basic-rate taxpayer whose savings interest stays under the £1,000 Personal Savings Allowance, interest from an ordinary account would not be taxed either, so the tax-free prizes add nothing. The advantage grows for higher-rate taxpayers (a £500 allowance) and additional-rate taxpayers (none).
New money waits. The whole-month rule means a purchase sits for one to two months before its first draw, earning nothing, and money paid in early in a month waits longest.
It is a cash product, not an investment. The capital does not grow; only prizes are paid. For money meant to stay put for many years, the usual comparison is a stocks and shares ISA, which can grow and can also fall in value.
Related
An emergency fund is one job savers use Premium Bonds for, since the money can be withdrawn without notice or penalty. Inflation and savings explains what a return below inflation does over time, and compound interest shows what a steady rate adds up to, which prizes paid out and spent do not.
For money that can be locked away or invested, the stocks and shares ISA, the Lifetime ISA and the SIPP are the main UK wrappers, and cash ISA against stocks and shares ISA covers the choice between the two kinds of ISA.
Judge Premium Bonds on the median, not the prize fund rate. Unless the holding is large, the rate is an average you are unlikely to receive, so compare the typical result with what a taxed savings account would leave you after tax.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.