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Are Premium Bonds a good investment?

I was tidying my documents the other day and came across an old Premium Bond certificate that I received as a gift around the time I was born.

With fingers firmly crossed, I checked the website to see if I was a lucky winner, and… I wasn’t.

Which means that in the past 46 years I’ve held them, I have won absolutely nothing in Premium Bond prizes.

1 What are the odds of winning on Premium Bonds?
2 Premium Bonds are guaranteed
3 Premium Bond prizes are tax free
4 £61 million in unclaimed prizes
5 Conclusion
6 Further Reading

Home country bias

What are the odds of winning on Premium Bonds?

The rate of interest on Premium Bonds is based on a monthly prize draw. Currently, the annual prize rate is a modest 1.3%.

However, from 1 December 2020, this will drop further to 1%.

This means that, for every £1,000 invested in Premium Bonds, you would, on average, receive £10 a year in interest/prize money.

The odds on winning a single prize from Premium Bonds is to fall from 24,500/1 to 34,500/1 in December 2020.

Except, in practice, this is impossible, as the smallest possible prize is £25.

This is worth bearing in mind if you are considering buying Premium Bonds for a child or grandchild. It probably explains my lack of winnings over the years.

In reality however, even if you did get 1.3%, you would still likely be losing money in real terms due to inflation.

This is not good news for the 22 million people who, between them, own £70 billion in Premium Bonds.

Premium Bonds are guaranteed

This used to be one of the big selling points of Premium Bonds. They are issued by NS&I, which is owned by the UK Treasury after all.

However, these days, all UK regulated savings accounts are protected by the Financial Services Compensation Scheme. This scheme covers up to £85,000 per person, per institution.

In comparison, the maximum that can be put into Premium Bonds is £50,000, meaning that even the safety factor isn’t such a big deal.

Savings, Security and Later-Life Planning

Premium Bonds are often used by people prioritising capital security over investment growth, particularly later in life. For retirees or those approaching retirement, preserving savings while maintaining access to funds can be just as important as generating income.

This type of cautious approach frequently forms part of wider retirement planning, especially for those considering retiring abroad, where access to capital, currency considerations, and long-term financial stability all play a role.

Premium Bond prizes are tax free

Another attraction of Premium Bonds is that the prizes are tax free.

However, this means that they are free of UK tax. As an expat, you should obviously take into account the tax treatment of any prizes in your country of residence.

>>> Fun Quiz: How Retirement Ready Are You? Click here to find out.

Premium Bonds, Tax and Overseas Living

While Premium Bond prizes are tax-free in the UK, tax treatment can become more complex once you live overseas. Residency status and local tax rules may affect how winnings or holdings are viewed outside the UK.

This is particularly relevant for those retiring overseas to countries such as Greece, Spain, or Poland, where local tax rules and reporting requirements may differ from the UK.

£61 million in unclaimed prizes

There is currently £61 million in unclaimed Premium Bond prizes, so if you do have some, check their website. You never know…

Savings, Pensions and Cross-Border Planning

Premium Bonds are rarely held in isolation. They typically sit alongside pensions, ISAs, and other savings as part of a broader financial picture. Understanding how these elements work together is especially important once you live or retire overseas.

For individuals with international lives, coordinated planning helps ensure savings and income remain tax-efficient and accessible. This is where cross-border financial advice helps align savings decisions with pension income, residency status, and long-term goals.

Conclusion

So, are Premium Bonds a good option for expat investors?

While there is the obvious attraction of claiming one of the two monthly £1 million top prizes, with odds of claiming a single prize of 34,500/1 Premium Bonds are nowhere near as good as they used to be.

There are certainly better ways to allocate savings.

💡 Frequently Asked Questions

What are the current odds of winning a Premium Bond prize?

As of now, the odds of winning a Premium Bond prize are around 34,500 to 1 for each £1 Bond. This means for every £1,000 held, you might expect to win one £25 prize annually on average—though outcomes vary greatly.

Are Premium Bonds a good investment for children?

While Premium Bonds are often gifted to children or grandchildren, the odds of winning anything meaningful on small amounts are very low. They may offer excitement but generally poor returns compared to inflation or junior ISAs.

Are Premium Bond prizes really tax-free?

Yes, Premium Bond prizes are tax-free in the UK. However, British expats may still be liable for tax on winnings in their country of residence, depending on local tax laws.

Are Premium Bonds risk-free?

Premium Bonds are backed by NS&I, which is part of the UK Treasury, so your capital is safe. But unlike typical savings accounts, they don’t pay guaranteed interest, meaning your money could lose value over time due to inflation.

Can I lose money with Premium Bonds?

While your original investment is safe, you may lose money in real terms due to inflation, especially if you don’t win any prizes over long periods.

What is the maximum Premium Bond holding?

The maximum an individual can invest in Premium Bonds is £50,000.

Are there better alternatives to Premium Bonds?

Yes, for those seeking steady returns or inflation-beating growth, there are often better options like fixed-term savings, stocks and shares ISAs, or low-cost investment funds—especially for long-term goals.

How do I check if I’ve won a Premium Bond prize?

You can check for unclaimed prizes directly on the NS&I website using your Premium Bond holder’s number.

Talk to an Expert

Premium Bonds are one of the UK’s best known savings products, but they are also widely misunderstood. There is no guaranteed interest, prizes are not evenly shared, and the position can be even more complicated if you are a British expat or planning to move overseas.

I am Ross Naylor, a UK-qualified Chartered Financial Planner and Pension Transfer Specialist with nearly 30 years of experience helping clients and expats decide where Premium Bonds fit within a sensible, long term financial plan, rather than relying on them as a core retirement or savings strategy.

I firmly believe your location in the world should never be a barrier to expert, impartial and transparent financial advice you can trust.

Whether you are wondering if Premium Bonds are still worth holding, how their prize rate compares with cash savings, what happens if you live abroad, or how they fit alongside ISAs, pensions and investments, I will help you weigh up the pros and cons so your money is working as hard as you are comfortable with.

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