Premium Bonds Explained: Gambling or Great Investment?

Host: 00:00:00

Imagine this, you tidying up your room and stumble upon an old gift envelope from your grandparents inside. There’s a certificate saying you own something called premium bonds. You scratch your head. Premium what’s? Are these like lottery tickets, savings bonds, a secret code to pirate treasure? You call up mom and she goes, oh yeah, grandma bought those for you when you were little.

Host: 00:00:23

Great, but what do you actually do with them? Do you call a number to see if you won a million—or just frame the certificate on your wall? If you have no clue how premium bonds work, you are not alone. Trust me, so many of us have been there. Welcome to Finance for Everyone.

Host: 00:00:40

In today’s episode, we’re tackling the mystery of premium bonds in the UK. By the end of this chat, you’ll know exactly what premium bonds are, how they really work, and what that means for your money. We’ll share a relatable story featuring one baffled premium bond holder, break down the pros, cons, and the odds of winning, and even bust a few myths along the way.

Host: 00:00:59

So if you’ve [00:01:00] ever wondered whether you are sitting on a secret fortune or just some fancy keepsake from Nana, keep listening. This one’s for you. Today we’re going to introduce our fictional character, Sam, a 25-year-old from Leeds. Sam’s the kind of guy who still has a piggy bank on his shelf and a stack of old birthday cards in his drawer.

Host: 00:01:19

And one day while rifling through those cards for nostalgia, falls out a premium bond certificate, 500 pounds worth, gifted by his grandma on his seventh birthday. Now Sam barely remembers getting it. He was more excited about the toy train he got that year. And since then, the premium bonds have been chilling quietly in his name. Now he’s staring at the certificate like it’s written in ancient Greek. Have I been sitting on 500 pounds plus a load of winnings I dunno about, or is the 500 pounds still just 500 pounds?

Host: 00:01:51

He wonders, curious and admittedly dreaming of a secret jackpot. Sam decides to investigate. He logs onto the premium bonds website, creates an account [00:02:00] to check his bonds, and half expects confetti to pop out of the screen announcing that he’s won 1 million pounds. Hey, a guy can dream. Sam has heard that premium bonds don’t pay interest like a normal savings account, but instead give you the chance to win prizes in a monthly draw.

Host: 00:02:16

Sounds a bit like a lottery, right, except you actually never lose your original money. Grandma’s 500 pounds is still safely his no matter what. So worst case, I still have my 500 pounds. Best case, I am a millionaire. That sounds kind of awesome, Sam thinks

Host: 00:02:34

imagining calling Gran to tell her about his future yacht. But Sam is also a tiny bit skeptical. He’s never won so much as a raffle, so the idea that he might have won something over the years feels unlikely. He remembers to check if any prizes have been won on his bonds, and after a few clicks, the screen shows 25 pounds won in May, 2015.

Host: 00:02:58

Huh? Apparently when Sam was [00:03:00] in secondary school, one of his bond numbers hit a small win and the prize is still unclaimed. Oops. It’s like finding a 20-pound note in an old coat pocket—free money. Sam excitedly claims that 25 pounds and sets his account to automatically reinvest any future prizes.

Host: 00:03:15

Turns out you can do that, so little wins just buy more bonds. Now Sam’s both excited and intrigued. He didn’t exactly strike it rich, but hey, 25 pounds is still 25 pounds. And knowing he could win more is giving him a little thrill. However, Sam is also a practical guy. He wonders, should I leave this 500 pounds—525 pounds now with that win—in premium bonds for more lucky draws, or would I be better off just putting it in a normal savings account or an ISA where it earns interest? Sam decides it’s time to really figure out how these premium bonds work. So with a cup of tea in his hand, he starts digging for information, and that’s where our journey with Sam really begins.

Host: 00:04:00

Sound familiar? If you’ve got premium bonds from childhood or you’re just curious about them, you and Sam are on the same page. Let’s join in as he demystifies premium bonds step by step. Okay? Premium Bonds 101—what they are and how they work. So what exactly are premium bonds? Think of premium bonds as a quirky mashup of a savings account and a lottery.

Host: 00:04:22

They’re an investment product from the NS and I, which stands for National Savings and Investments, which is a fancy way of saying they’re offered by the UK government bank. They’ve been around since the 1950s, originally introduced to encourage people to save after World War II, and the idea is pretty unique.

Host: 00:04:40

Instead of paying you a guaranteed interest on your savings, premium bonds give you the chance to win cash prizes through a monthly draw. In other words, all the interest that would normally be paid out to everyone gets pooled into one big prize fund, and each month it’s split up as tax-free prizes for some lucky bond [00:05:00] holders. It’s like your money is entered into a monthly raffle, but you never actually lose that money in the raffle. You get back every pound that you put in at any time if you want out. The government promises that if you want to cash in your bonds, you’ll get back their full face value—the original one pound per bond—so it’s often called a no-lose lottery.

Host: 00:05:20

Your savings stay intact, and only the interest is gambled via the prizes. So how do they work? It’s pretty simple mechanics-wise. For every one pound you invest, you get one bond, and with that, a unique bond number. The minimum you can put in is 25 pounds, so that will get you 25 bonds, and you can keep buying more until you hit the maximum limit of 50,000 pounds per person.

Host: 00:05:44

Each bond number is like a ticket in the monthly draw. Once you’ve held a bond for a full month, it becomes eligible to win in every monthly prize draw going forward. So if you bought bonds in January, they’d sit out the February draw, and then from March onwards, they’re in it to win it every [00:06:00] month.

Host: 00:06:00

Prizes range from 25 pounds—the smallest prize—to a whopping 1 million pounds jackpot. And everything you win is completely tax free. That’s right. Whether you win 25 quid or a million pounds, you don’t pay a penny of tax on that prize. The reason being is because it’s like a lottery, and lottery and gambling winnings in the UK are not taxed.

Host: 00:06:24

Okay, who’s picking these lucky numbers? Meet Ernie. Okay, not the one from Sesame Street or a little man in a back room drawing numbers from a hat. Ernie is a computer—ably named Electronic Random Number Indicator Equipment—that generates the winning numbers randomly.

Host: 00:06:41

Ernie’s actually been the brains behind the operations since 1957, and over the decades, there have been different versions of the Ernie machine as technology has evolved, but the core job is the same. Each month, Ernie spits out the winning bond numbers for all of the prizes, big and small, using random statistical noise, which is pretty high-tech stuff for a process that [00:07:00] feels like a lottery.

Host: 00:07:01

Fun fact, the original Ernie was built by one of the engineers from Bletchley Park—which was the World War II codebreakers base—and used parts of code-cracking technology. Pretty cool. Nowadays, Ernie is basically just a specialized computer that can churn out millions of random numbers super fast.

Host: 00:07:18

This ensures that every bond has an equal chance in the draw. It doesn’t matter if it’s old or new, large or small. All bonds are treated randomly and fairly. In case you’re wondering, there’s a myth that newer bonds win more often. We’ll debunk that later, but spoiler—

Host: 00:07:34

Ernie doesn’t play favorites. So what’s the allure? Why do people buy premium bonds? Premium bonds are hugely popular in Britain—around 24 million people hold them. That’s like one in every three UK residents. So what’s the big draw? Pun intended,

Host: 00:07:52

okay. Here are a few reasons that people love them. First of all is the chance to win big. Okay? Let’s be honest—the dream of winning a [00:08:00] life-changing sum is a big part of the appeal. It’s the same thrill as buying a lottery ticket, except you don’t lose your stake every month.

Host: 00:08:08

There are two jackpot winners of 1 million pounds each and lots of other hefty prizes, so hundreds of people win 100,000 pounds, 50,000 pounds, etc., in every monthly draw. Even though most people will only ever win small prizes like 25 or 50 pounds—if they win at all—the possibility of hitting it big keeps things exciting.

Host: 00:08:28

It’s like having a ticket to a never-ending lottery that resets every month but never costs you more than what you’ve put in initially. For someone who loves the lotto vibe but hates losing money, premium bonds are attractive. The next is 100% security—your money is safe. Because premium bonds are issued by the NS and I, which is backed by the UK Treasury, aka the government.

Host: 00:08:51

That means that any money you put in is 100% guaranteed by the government. You’ll always get your deposit back no matter what. There’s no risk of the bank going [00:09:00] bust and you losing your savings. Effectively, the only way that you wouldn’t get your money back is if the UK government itself went bankrupt, in which case we’d all have bigger problems.

Host: 00:09:10

In finance terms, that’s about as safe as it gets. In fact, this government backing used to be a huge advantage back when bank deposits weren’t protected up to 85,000 pounds under the Financial Services Compensation Scheme. Nowadays, regular banks have that protection up to 85K under the FSCS, but since you can only put up to 50K in premium bonds anyway, both premium bonds and a normal bank account are very safe for the amounts that most people would have.

Host: 00:09:36

Still, there’s a comforting thought: premium bonds—your money isn’t just pretty safe, it’s literally as secure as the government. Okay, the next—tax-free prizes. So we touched on this earlier, but it’s worth highlighting: any prizes you win are tax free in the UK. You get to keep every penny.

Host: 00:09:54

That’s a big plus, especially for folks who might otherwise pay tax on things like savings interest. For example, higher-rate [00:10:00] taxpayers or people with large savings might exceed their annual tax-free interest allowance. With premium bonds, that’s not an issue. Even if you’re not a high roller, it just feels nice to know that the taxman won’t take a bite of your 25 quid win. By comparison,

Host: 00:10:14

in a normal savings account, if you earn interest above a certain threshold, you’d have to pay income tax on that interest. Premium bonds sidestep that entirely. The next one is gifting and saving for kids. A lot of premium bond holders got them as a gift like our friend Sam did. Parents and grandparents often buy premium bonds for children because they’re a safe way to put money aside for the kid’s future—

Host: 00:10:37

with that little extra excitement of maybe by the time you’re 18, you’ll have won a prize. Since you can buy bonds for anyone under 16, an adult just manages it on the child’s behalf. They’ve become the go-to for things like birthday or Christmas gifts that says, here’s some savings and a bit of fun.

Host: 00:10:54

It’s more interesting than just plunking the money in a piggy bank because each month there’s obviously that chance that the gift could [00:11:00] grow by luck, and hey, it gives a kid reason to learn something about saving and probability early on. And the final allure is easy access to your money.

Host: 00:11:09

Unlike some investments or long-term bonds, premium bonds can be cashed in at any time without any penalties. So need the money back? You can usually get it out within a few working days by just redeeming your bonds online or by phone. This flexibility makes premium bonds a great place for people to park money if they want it to be accessible, but still want a shot at prizes.

Host: 00:11:31

It’s not locked away—you remain in control of your funds. So, sounds almost too good to be true, right? Well, let’s pump the brakes and look at the trade-offs and the downsides, because there are definitely some. Premium bonds aren’t a magical money tree. They have some quirks that mean they’re fantastic for some people and a bit meh for others.

Host: 00:11:52

Okay, the reality check: odds of winning and what you really earn. So here’s the big catch with premium bonds: there’s [00:12:00] no guaranteed interest or income. You could hold your bonds for months or years and not win a thing. So while your money is safe, it might not be growing. In fact, if inflation is making prices go up each year, your money’s buying power is quietly shrinking unless you win prizes to outpace it.

Host: 00:12:21

So let’s break down the numbers and odds a little bit, okay? The odds of winning—every one pound bond has an equal shot at winning in each monthly draw. As of now,

Host: 00:12:32

the odds of any single bond winning something in a given month are about 1 in 22,000. Those are the same odds that the NS and I (the issuer) publishes and updates whenever they tweak the prize fund. So what does 1 in 22,000 mean in practice? It means that on average, if you have 22,000 pounds worth of bonds—aka 22,000 bonds (because one pound equals one bond)—you might expect to [00:13:00] win about one 25-pound prize per month, because 22,000 tickets as probability of 1/22,000 equals one win. If you have half that amount, so let’s say 11,000 pounds in bonds,

Host: 00:13:13

statistically, you might win around one prize every two months. And then if you have a smaller amount, like 1,000 pounds in bonds,

Host: 00:13:19

the odds say you’d win about one prize every 22 months, which is almost two years. And if you have just 100 pounds in bonds, on average you might win once in every 220 months, which is over 18 years. Now,

Host: 00:13:38

that’s the law of large numbers talking—actual reality can be really different for individuals. You could have 50 quid in there and get super lucky, winning 1,000 pounds one month, or have 50 grand—the max that you can put in in premium bonds—and still go a whole year with only one or two 25-pound wins.

Host: 00:13:56

It is a lottery, after all. In fact, in March, 2025, just a [00:14:00] few weeks before this episode is released, one jackpot winner who only had 100 pounds in premium bond holdings won the million-pound prize. Lucky! Meanwhile, plenty of people with tens of thousands in bonds have yet to see a big win. So while more bonds equals more chances—since each bond is a chance of winning—there’s no guarantee you personally will hit the average outcome in the short term.

Host: 00:14:30

Okay, the next reality check: the prize rate, aka the interest rate analogy. The NS and I sets a prize-fund rate, which is currently around 3.8% per year.

Host: 00:14:42

This can change—for example, where it used to be 4.15% and then 4%. That percentage is kind of like the “interest rate” of the whole prize system. It means that for all bonds out there, the total paid in prizes over a year is equivalent to roughly 3.8% of the total money [00:15:00] in premium bonds. However—and this is critical—you are not guaranteed to get that rate on your money.

Host: 00:15:08

Unlike a normal savings account paying 3.8% interest—which would give everyone that rate—premium bonds distribute that 3.8% very unevenly via prizes.

Host: 00:15:18

Many people will get less than that, and a lucky few will get way more. In fact, most typical people will earn less than the prize rate. A famous money expert (you’ve probably heard of him) crunched the numbers, and he found out that with average luck,

Host: 00:15:36

most people will win less than the prize rate on their bonds. For example, with the current rate, someone holding 1,000 pounds in bonds might statistically expect to win nothing in a whole year—so 0% return—while someone with the max 50,000 pounds in premium bonds might expect only around 1,300 to 1,700 pounds in prizes in a year, which would be something like 3 to 3.5% of a return, not 3.8.

Host: 00:16:00

Now, Martin Lewis himself has a calculator for this, so I will link that in the show notes. All of these numbers are medians, meaning that half the time you would do better than this, and half the time you would do worse. The key point is premium bonds usually won’t beat a high-interest savings account unless you’re pretty lucky.

Host: 00:16:20

If a bank—let’s say—is offering 4% guaranteed, and the premium bonds prize rate is 4%, odds are you’ll come out ahead with the bank’s interest in a year’s time, especially now as savings account rates are relatively high. Premium bonds shine more when the bank’s interest rates are lower, or if you can’t earn interest tax-free for whatever reason that may be.

Host: 00:16:39

Another reality check: the vast majority of prizes won each month are the small ones. For instance, in a recent draw, there were only two jackpot winners of 1 million pounds, but around 2.3 million prizes were paid out for 25 pounds. So if you do win, it’s most likely gonna be 25 quid.

Host: 00:17:00

The medium prizes like 100 or 500 pounds are also possible, but far less common than the 25-pound prizes. Now, this doesn’t mean you can’t hope for the big fish, but it’s good to set expectations that your bond is much more likely to reel in a goldfish than a whale. And finally, earning no interest equals an inflation risk.

Host: 00:17:20

So because you are not earning guaranteed interest on your money, if you have a long dry spell with no wins, your money’s value is slowly being eroded by inflation—which is the increase in the amount of money circulating around in the system that causes general price increases over time. For example, if prices go up, let’s say 5% in a year and you win nothing, your 100 pounds is still 100 pounds a year later, but it can now buy 5% less stuff than before. Over many years, unless you hit some decent wins,

Host: 00:17:53

premium bonds likely won’t keep up with inflation. By contrast, a decent savings account or an ISA might pay [00:18:00] interest that helps offset inflation at least partially. So premium bonds are not great if your goal is to grow your money’s purchasing power reliably.

Host: 00:18:08

They’re more about giving you a chance at upside while keeping your money safe in nominal terms.

Host: 00:18:13

Okay, premium bonds versus traditional savings and ISAs. So, how do premium bonds stack up against just chucking your money in a normal savings account or cash ISA? Here’s a face-off: let’s look at a guaranteed-interest savings account versus a prize gamble—aka premium bonds. So in a normal savings account or ISA, you get a set interest rate, for example 3% or 4% per year.

Host: 00:18:39

If you put in 1,000 pounds at 4%, you’ll have 1,040 pounds after a year—guaranteed—and of course ignoring taxes for the moment. Premium bonds: if you put 1,000 pounds in, you could at the end of the year have 1,000 pounds still with no wins, 1,025 pounds with one small [00:19:00] win, or maybe 1,100 pounds with several small wins or one medium prize win,

Host: 00:19:05

or if lightning strikes, you could have 2,000 pounds with one big win. So there’s a huge range here, but most likely you won’t hit that top end. The savings account is predictable and steady, but premium bonds are unpredictable but with a bit of excitement. It’s the classic tortoise versus the hare, but in this case, the hare might not ever actually get to the finish line.

Host: 00:19:28

The next point to consider is tax considerations. So premium bond prizes are tax free, which is a big plus. Regular savings interest can be taxable if used outside ISA. However, in the UK, we have something called the Personal Savings Allowance. Basically, most people can earn a fair bit of interest each year without tax—up to 1,000 pounds for basic-rate taxpayers and 500 pounds for higher-rate taxpayers, and zero pounds for additional rate.

Host: 00:19:53

And ISAs (Individual Savings Accounts) are special savings accounts that are also tax-free by law. So if [00:20:00] you have modest savings, you might not pay tax on interest anyway, or you can use an ISA to avoid paying tax. So in most cases, the tax-free aspect of premium bonds doesn’t really give you an extra benefit.

Host: 00:20:11

It mainly helps people with large savings or higher incomes who otherwise would get taxed on that interest. For example, if you’re a higher-rate taxpayer and you’ve already got a lot of money in the bank generating interest, additional interest might be taxed at 40%.

Host: 00:20:26

Premium bonds could be attractive there because any prizes won don’t count as taxable interest at all. It’s like an extra tax-free wrapper on top of your ISA. For average Joes and Janes with a few thousand in savings, you’re not likely breaching those allowances anyway, so a normal savings account is effectively also tax free for you. Okay?

Host: 00:20:33

Accessibility and flexibility—both premium bonds and easy-access savings accounts let you withdraw money when you need it. Premium bonds typically take a couple of days to cash in, and you can withdraw in chunks, so you can redeem, for example, 100 pounds of your winnings or the whole lot. Savings accounts can be either instant or a few days depending on the bank, and some banks might [00:21:00] only let you take out your savings once or twice per year, so please watch out for that.

Host: 00:21:12

Now, neither is particularly hard to access in an emergency, but a regular bank account might be a tad quicker. One thing to note is that premium bonds have that rule that new deposits sit out the first prize draw—they have to be in for a full month first. So if you’re tossing money in just before a monthly draw, you’ll have to wait for the one after that for those bonds to be active.

Host: 00:21:33

No biggie, but it’s a small quirk. Next up, returns and inflation. As mentioned, a good savings account at the moment might pay interest that beats what an average premium bond holder would get. If inflation is, let’s say, 3%, and your savings account pays 4%, you’re actually growing your money’s real value by 1%. With premium bonds,

Host: 00:21:56

if the prize rate is 4% but you only win [00:22:00] 2% worth of your balance in prizes that year, your overall balance in the premium bonds account has actually lost buying power. So over long periods, a consistently decent interest rate will usually grow your savings more reliably than the luck-based returns of premium bonds for most people.

Host: 00:22:08

But of course, with premium bonds, there’s always the “what if I win big” factor, and no savings account will ever randomly give you 100,000 pounds. But premium bonds just might—and that’s a very, very small “might,” but still.

Host: 00:22:32

Okay, so who are premium bonds best suited for? They’re great for those who:

A) want absolute security of their money backed by the government while still having a flutter on possibly winning more;

B) don’t need or care about a steady interest or income but like the idea of prize draws and the potential, especially if you’ve maxed out other safe tax-free options like your ISA allocation;

��ve got your emergency fund [: 00:23:00

D) higher-rate taxpayers or folks with lots of savings who have used up their ISA allowances. For them, premium bonds can be a handy additional place to stash money without worrying about all that taxable interest they’re earning on savings outside of tax shelters;

Host: 00:23:15

and E) let’s be real—premium bonds are sometimes just bought for a bit of fun by people who treat it like a safer version of a lottery ticket. In fact, if you or someone you know spends a lot of money on lottery tickets or prize draws or scratch cards, you could consider telling these people about premium bonds. Instead, if the excitement of checking results each month makes you more inclined to save money, that’s not a bad thing. You can actually build a pretty decent savings pot this way.

Host: 00:24:00

But on the other hand, if you desire steady income or growth—say you are retired and you want interest every month to help with bills, or you’re saving up for something and need to see your money reliably growing, then premium bonds may disappoint you. A fixed interest account or an ISA would serve you better ‘cause you’ll actually see the interest coming in regularly.

Host: 00:24:16

B) are aiming to beat inflation reliably for long-term goals. Historically, unless you get outrageously lucky, premium bonds won’t beat inflation. Over time, you’d likely be better with other investments or at least interest-bearing accounts. Or C) don’t want any uncertainty. If the thought of “I might get nothing this month” makes you uneasy, just stick with guaranteed interest.

Host: 00:24:38

Premium bonds require a bit of patience and tolerance for possibly getting zero return in some periods.

Host: 00:24:44

Okay, back to Sam, our fictional friend. He’s now learning all of this and he realizes that his 525 pounds of premium bonds is safe and might win a bit more here and there, but it’s not going to reliably grow like it would in a decent [00:25:00] savings account. However, he also kind of likes the idea that it’s tax free and backed by the government, and hey, Grandma intended for him to have some fun with it.

Host: 00:25:09

Now that he’s informed, he’s almost ready to decide what to do. But first, Sam comes across a lot of chatter and myths about premium bonds.

Host: 00:25:17

Let’s join him in busting some of these myths so we don’t fall for any misconceptions. Alright, common premium bonds myths, debunked. There’s plenty of folklore and misconceptions swirling around about premium bonds. Time to play some MythBusters and set the record straight on a few big ones.

Host: 00:25:33

Myth number one: Older premium bonds never win. You need new bonds to have a chance. Truth: nope. Age doesn’t matter. Each one-pound bond, whether bought in 2023 or in 1963, has an equal chance in every draw. This myth likely started because people noticed new purchases sometimes win, or they personally hadn’t seen an old holding win for a while.

Host: 00:25:58

But the NS and I has [00:26:00] confirmed that it doesn’t matter when you bought the bond—Ernie doesn’t even know the difference. The reason it seems like new bonds win more is often simply because there’s a lot more new bonds out there nowadays than old ones, because

Host: 00:26:13

premium bonds have grown in popularity over time—more people buying, plus the max limit that you can put in has actually increased over time. Statistically, therefore, more new bonds in circulation means more new bonds win. Any given bond, whether new or old, is just as likely to win as any other.

Host: 00:26:33

So don’t rush to cash in and rebuy thinking you’ll refresh your luck. It doesn’t work that way, and if your bonds haven’t won in a while, it’s just randomness, not their age.

Host: 00:26:43

Myth number two: Premium bonds are a scam, or only rich people ever win. Truth: okay, premium bonds are definitely not a scam. They’ve been running since the ’50s with government backing and a well-documented track record. Every month, millions in prizes are [00:27:00] distributed, and winners come from all walks of life all over the UK.

Host: 00:27:04

Remember, each bond has the same chance—whether you own one bond or 50,000 bonds. It’s true that the more bonds you have, the more entries you have to win, so someone with the max 50K holding statistically is more likely to win a prize than someone with a 100-quid holding.

Host: 00:27:20

But huge wins can still go to small holders as we saw earlier. There’s no secret society of premium bond millionaires. It’s just pure luck. And the NS and I publishes the prize results openly—even the first names and areas of the jackpot winners—and no, they don’t give the full identities for privacy, but just enough to show that it’s legit.

Host: 00:27:40

So while it can feel like, “Ugh, I never win, this must be rigged,” it isn’t. It’s just that the odds are steep, and you know, randomness gonna random. Myth number three: you can lose money on premium bonds. Truth: in terms of the nominal value of money put in, you can’t lose a [00:28:00] penny. But if you put in 500 pounds like Sam’s grandma did, Sam will always be able to get that 500 pounds back unless he wins and reinvests prizes, in which case it could be more.

Host: 00:28:11

The UK government guarantees your capital. So unlike the stock market or even a regular lottery, you won’t see your balance drop. However—and this is where the nuance is—you can lose out in the sense of opportunity cost or inflation. If you would’ve earned interest elsewhere but didn’t win anything in premium bonds, you “lost” the interest that you could have otherwise had.

Host: 00:28:35

And if prices rose due to inflation, your money’s purchasing power has gone down over time. So the value of your money in your premium bonds account can erode, but the number of actual pounds that you have will never decrease due to premium bonds themselves. Some people confuse that and think, I could end up with less money.

Host: 00:28:54

You won’t end up with, let’s say, 490 pounds out of 500 pounds or anything like that—you [00:29:00] still have 500 pounds. That 500 pounds, though, just might not stretch as far in the future if it has not grown with prizes. So as long as you’re aware of that, you’re not actually losing money like you could in investments that can drop in value.

Host: 00:29:15

Myth number four: premium bonds payouts are lower now because it’s harder to win these days. Truth: the odds of each bond winning do change occasionally, but the NS and I is pretty transparent about it. They adjust the prize-fund rate based on interest rates and such. For example, in 2021, the odds were around 34,500-to-1 for a one-pound bond to win any prize, but in 2022 to 2023, the rates improved and the odds became around 24,500-to-1, and then 22,000-to-1 as of late 2024.

Host: 00:29:52

So sometimes they may make it slightly easier or slightly harder to win by changing the number of prizes, but they announce these changes. If you [00:30:00] hear “it’s harder now,” it might refer to the recent slight reduction in the prize-fund rate—for example, the recent reduction from 4% to 3.8%, which is as of the time of the recording of this episode—which could mean slightly fewer or smaller prizes going forward, but it’s all proportional.

Host: 00:30:17

Everyone’s odds remain equal per bond. Importantly, premium bonds are actually paying out more in prizes now, in terms of interest rates, than when interest rates from banks were super low.

Host: 00:30:30

So when banks were paying like 1% a few years ago, premium bonds’ prize rate was also lower. But now that banks pay around 4%, the premium bonds prize rate is also approximately 4%. NS and I tries to keep it competitive but also sustainable. So long story short, it’s not always that premium bonds don’t pay out anymore. They do—it’s just that the landscape changes. Always check the current prize rate and the odds from the NS and I if you’re curious. Again, I’ll leave some links in the show [00:31:00] notes.

Host: 00:31:01

Myth number five: if I haven’t won by now, I might as well give up. Cue the photo of the Walter White mining in 2D, and then he turns around just before he hits diamonds. Okay. Premium bonds wins are random, so past luck doesn’t predict future luck. It’s just like flipping a coin. Even if you’ve got 10 tails in a row, the next flip is still 50-50 heads or tails.

Host: 00:31:26

Similarly, you could go years with no win and then suddenly hit a massive streak, or just a big win, or vice versa. There’s actually a psychological phenomenon at play—we remember our losses (no wins) more than we celebrate small wins, so it can feel like you’re never winning, even if you’ve got a few 25-quid wins in the last year.

Host: 00:31:46

If premium bonds still align with your goals—for example, the security, the chance of upside, etc.—don’t let a dry spell completely discourage you, but do regularly re-evaluate if you realize you’d rather have guaranteed interest—there’s no shame [00:32:00] in cashing out.

Host: 00:32:01

Just don’t fall for the gambler’s fallacy of “I haven’t won yet, so I’m due for a win.” Each month is a fresh, independent chance—no bond is ever due. Likewise, no need to give up out of frustration if you still enjoy being in the game. Your chances per bond remain the same with each draw.

Host: 00:33:13

Okay, now that Sam has gotten the full scoop on premium bonds, he feels a lot more confident about what to do. He sits down with a much clearer head to make a decision about Grandma’s 500-pound gift—now 525 pounds with that little win. He realizes a few key things.

Host: 00:34:00

First, he’s relieved to know that his money is completely safe and that he can cash out anytime if he needs those funds, because he knows that the 525 pounds is secure with the NS and I—thanks, government guarantee. Second, he’s adjusting his expectations.

Host: 00:35:10

He’s not counting on a big win, and he knows that if he leaves the money in premium bonds, he might not see any growth for a while—except maybe an occasional 25-quid surprise. On the flip side, if he moves that 525 pounds to a high-interest savings account at, let’s say, 4% interest, he’d earn about 21 pounds of interest over the next year, guaranteed.

Host: 00:35:26

Sam thinks about his personality and goals. He actually kinda likes the idea of being in the premium bonds draw—it’s a bit of fun, and he doesn’t desperately need that 21 pounds of interest for anything immediate. He also likes that any prize he wins is a nice bonus that he can either reinvest or use to treat himself, completely guilt-free. Plus it feels special knowing that Grandma has put money in this premium bonds account for him, almost like she wanted him to have that sense of possibility.

Host: 00:35:40

So Sam decides he’s gonna keep his premium bonds for now. He even sets up the online login to get email notifications if he does win, and opts to reinvest small prizes automatically—so his stash can slowly grow if luck allows. Who knows, maybe one day he’ll get that knock-your-socks-off prize.

Host: 00:35:59

But if [00:36:00] not, he’s fine with the occasional small wins.

Host: 00:36:00

Importantly, Sam isn’t putting all of his savings into premium bonds—he only has this 525 pounds there. Meanwhile, he started also building an emergency fund in a regular bank savings account for stability, and he’s learning about ISAs for longer-term saving. Premium bonds will just be his fun-money savings on the side.

Host: 00:36:15

So armed with knowledge, it feels good about that strategy. It suits his situation—no more confusion, no more unrealistic fantasies of yachts. Alright, well, maybe a tiny part of him will still dream, but now he knows the odds. He’s grateful he took all the time to understand how it all works. As for you, dear listener, the goal of this episode wasn’t to push you one way or another on premium bonds, but to give you the info you need to decide for yourself. Maybe you’ve realized, like Sam, that keeping some premium bonds for the thrill is worth it, or maybe you’re thinking, hmm, I’d rather have guaranteed interest.

Host: 00:36:33

I might cash in and use a cash ISA instead. The awesome thing is, either choice can be perfectly valid. It’s all about what fits your life and comfort level. Now you know that if someone hands you a premium bond certificate, you won’t be baffled.

Host: 00:36:41

You’ll nod and say, ah yes, my chance at His Majesty’s Lottery Savings program—and proceed to explain it to your impressed friends that also think you’re a bit sad. In the end, Sam is happy. Grandma’s happy that Sam appreciated her gift. He even called her to thank her again and update her.

Host: 00:36:54

She was thrilled he won that 25 quid—and you’re hopefully feeling a lot more premium bond savvy. [00:37:00] Remember, finance is personal. Premium bonds work great for some and not for others, but now it’s not a mystery anymore.

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Host: 00:37:00

Okay, everybody. That’s a wrap for today’s Finance for Everyone episode on premium bonds. I hope you enjoyed, and more importantly, I hope you’re leaving with a bit of a clearer understanding of what premium bonds are all about and whether they make sense for you. Quick disclaimer: everything we chatted about today is for education and a bit of entertainment.

We’re not financial advisors, and this isn’t personal financial advice. When it comes to your own money, always consider your personal circumstances. If you’re unsure, talking to a qualified financial advisor can help you make decisions tailored to your situation. Basically, don’t bet the farm because we made premium bonds sound fun. Always do what’s right for your own wallet. If you enjoy this episode, please rate us on your podcast platform—it really helps out—and follow the show so that you never miss our friendly breakdowns of money topics. If you’ve got friends or family who have dusty premium bond certificates lying around, share this episode with them.

It might save them from scratching their heads. We love spreading the knowledge. Lastly, we’d love to hear from you. Have you ever won a premium bond prize—or do you have any money myths you want busted? Send in your questions or stories. Who knows, it might be a future episode. Thank you so much for listening. Keep learning, keep growing that financial savviness, and we’ll catch you in the next episode.

Happy saving, and may Ernie ever be in your favor.