4.30%
AER
Fixed rate bond
United Kingdom
(AA)
Rate reducing soon
Premium Bonds or savings accounts?
Is it better to save with a traditional savings account, or buy Premium Bonds?
Set up in 1956, the UK government introduced Premium Bonds to encourage people to save money, whilst also having the chance to win cash prizes in a monthly prize draw. Nearly 75 years later, around 21 million people in the UK held Premium Bonds, according to NS&I. So, are they a better option than a traditional savings account? In this guide, we’ll compare Premium Bonds vs savings and look at the pros and cons of both.
Key takeaways
Chance to win: Premium Bonds are generally considered to be a fun way of depositing money safely with the chance of winning tax-free, monthly prizes
Government-backed: Premium Bonds are backed by the UK government, giving you peace of mind that your money is protected
Restrictions: Whether opting for Premium Bonds or a savings account, there may be restrictions on deposits and withdrawals
The information provided here is for informational and educational purposes only and does not constitute financial advice. Please consult with a licensed financial adviser or professional before making any financial decisions. Your financial situation is unique, and the information provided may not be suitable for your specific circumstances. We are not liable for any financial decisions or actions you take based on this information.
Are savings accounts better than Premium Bonds?
In short, it depends. Whether you prefer Premium Bonds or savings accounts will depend on your preferences, savings goals and financial situation.
The main difference between the two is the rate of return you’ll receive: with Premium Bonds, you’ll typically earn no interest on the money you’ve deposited, but you’ll have the chance of winning tax-free, monthly prizes in a prize draw - from £25 up to £1 million. In comparison, a savings account will have a guaranteed level of interest attached to the account (either fixed or variable), so you’ll know exactly how much interest you’ll earn in a set period.
Compare the pros and cons of Premium Bonds vs savings accounts in the table below.
Savings accounts | Premium Bonds | |
|---|---|---|
Pros | Typically easily accessible without restrictions | The chance to win monthly, tax-free prizes from £25 to £1 million |
Earn interest or an expected profit, with rates compared using the AER | Backed by the government, so your money is protected | |
There may be no limit on how much you can deposit in one savings account | You can open an account for your children or grandchildren | |
FSCS protection offers deposit protection up to £85,000 per person, per bank | You can top up your balance any time, up to the maximum deposit | |
Cons | You may be subject to tax on your interest | You have a relatively low chance of winning |
If the interest rate is lower than inflation at a given time, your savings may not see real-world increases anyway | You can only fund a maximum balance of £50,000 | |
To secure the highest interest rates on savings accounts, you may not be able to top your account up or make withdrawals | It may take 5-10 working days to withdraw money to your nominated account | |
With variable-rate savings, the amount you earn depends on interest rates, which can go down at any time. | Manage your money online only |
Is it worth putting my money in Premium Bonds?
As of July 2025, the prize rate for Premium Bonds is 3.80% for the July prize draw, but this will drop to 3.60% from the August 2025 prize draw*. This means, on average, each £1 bond has the potential to win the equivalent of 3.80% (or 3.60% from August 2025). In theory, the more you save in your Premium Bonds account (up to your maximum deposit of £50,000) the more chance you have of winning a prize, as the more bonds you hold, the greater the number of entries you have in the monthly prize draw. However, as Premium Bonds are a form of luck-based savings, there’s still no guarantee of winning no matter how many bonds you hold.
If you’re okay with the possibility of not increasing your balance, you may decide it’s still worth putting your money in Premium Bonds for the chance of winning a tax-free, monthly prize, however small. If you’ve also surpassed the threshold for tax on savings interest for the year, and you’ve maximised your ISA allowance, you may also consider Premium Bonds to be a safe, tax-free way to invest a lump sum.
However, if you’re wondering whether it’s better to go for Premium Bonds or savings, and you know you would prefer to receive a guaranteed return on your money, a fixed rate bond offering a competitive AER may be a better option for growing your savings.
Although cash savings accounts don’t offer a monthly or annual prize, you will typically receive an interest payment which is paid monthly or on an annual basis. If protecting your money from tax is important, you could also consider opening an ISA, which allows you to save up to £20,000 per year, tax-free. Find out what an ISA is and the key differences on our Premium Bonds or an ISA page.
Can I use Premium Bonds as a savings account?
There’s nothing to stop you from using Premium Bonds as a savings account as long as you’re content with the possibility that your balance may never increase, as it would in a traditional savings account with a set or variable AER.
Premium Bonds are backed by the government, so you can be content that your money is secure and protected, but this is also the case with any savings account with FSCS deposit protection in the UK.
As with savings accounts for grandchildren, you can also open a Premium Bonds account for your child or grandchild, so this may also feel like a convenient investment in their future and a way to ‘save’ money, as you can carry on depositing money on their behalf until they are 16 (and of course, they may also win a prize).
Save with Raisin UK
As with any investment, it’s important to weigh up the pros and cons and ensure you compare Premium Bonds vs savings properly.
Raisin UK offers a safe, flexible way of saving, by earning guaranteed interest from savings accounts with rates up to 4.30%. Our marketplace makes it easy to browse, apply for and manage all your deposit-protected savings accounts under one roof. Register today and start earning interest on your savings.
*https://www.nsandi.com/products/premium-bonds