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United KingdomInstruments1 min read

UK: Premium Bonds and NS&I

Government-backed savings where your 'interest' is a monthly prize draw — how Premium Bonds work and who they suit.

NS&I (National Savings & Investments) is a UK government-backed savings institution, so your money is exceptionally secure. Its best-known product is Premium Bonds.

How Premium Bonds work

  • Instead of paying interest, bonds are entered into a monthly prize draw for tax-free cash prizes (from small amounts up to large jackpots).
  • Each £1 bond is a separate chance to win, up to a holding limit.
  • Your capital is 100% safe and you can cash out anytime.

The catch

  • Returns aren't guaranteed — you might win nothing. The average "prize rate" gives a sense of typical returns, but many holders earn below it while a few win big.
  • With no guaranteed interest, holdings can lose value to inflation.

Who they suit

  • Savers who value total safety and the fun of a flutter, especially those who've used up their tax-free ISA allowance.
  • Higher-rate taxpayers seeking a tax-free home for cash.

Other NS&I products

NS&I also offers savings accounts and bonds, all government-backed — safe, though rates vary and aren't always market-leading.

Key takeaway

Premium Bonds are ultra-safe and tax-free, trading guaranteed interest for a prize-draw chance. Fine for a portion of safe cash, but for reliable growth, diversified investments usually serve long-term goals better.

Up next

UK: Tax allowances for investorsA tour of the tax-free allowances that let UK investors keep more of their returns — and why wrappers still matter.UK: Investing on the London Stock ExchangeHow to start investing in UK shares and funds — the LSE, the FTSE indices, and the platforms that give you access.

General educational information, not financial, tax, or investment advice. Consider your own circumstances and consult a qualified professional before making decisions.