NS&I Premium Bonds Myths Explained: Are They Really Worth It?

Premium Bonds are a very British savings idea. You put your money into something that doesn’t pay interest like a normal savings account, but instead gives you a chance to win tax-free cash prizes every month. It’s almost like saving with a built-in lottery without ever losing your original money.

They’re run by NS&I — National Savings & Investments, a UK government-backed institution. That means your capital is safe and the government guarantees it.

Common NS&I Premium Bonds myths.

Before diving into what NS&I entails, let’s bust the common myths and reveal the truth about them.

Myth 1: “Premium Bonds are just gambling.”

Not quite. Gambling means you can lose your money. With Premium Bonds, your cash remains safe and can be withdrawn at any time. You’re saving with a chance of winning.

Myth 2: “If you hold them long enough, you’ll definitely win.”

There’s no guarantee. Some people win quickly. Others never do. Time doesn’t improve your odds; the amount you hold does.

Myth 3: “You’re more likely to win after months of losing”.

Nope. Each draw is independent. Last month’s losses don’t boost this month’s chances. Every draw starts fresh.

Myth 4: “The prize fund rate is what everyone earns.”

It isn’t. The prize fund rate indicates the total amount paid out, not the amount you personally receive. Your return could be high, low, or zero.

Myth 5: “Premium Bonds pay interest.”

They don’t. There’s no interest, no compounding, only prizes. If you don’t win, your balance stays the same.

Myth 6: “Only adults win big prizes.”

Wrong. Children’s bonds have the same odds. Kids have won large prizes, too.

Myth 7: “Premium Bonds protect you from inflation.”

They protect your money, not its buying power. If inflation rises and you don’t win often, your savings may lose real value over time.

Myth 8: “Premium Bonds can’t be passed on.”

They can’t be transferred directly, but they don’t disappear. When someone dies, the bonds are cashed i,n and the money becomes part of their estate.

Also read: Rachel Reeves’ Savings Tax Crackdown Could Quietly Shrink Your Paycheque

How Premium Bonds really work

Let’s break it down simply:

• You buy bonds in £1 units.
• The minimum you can invest is £25.
• The maximum you can hold is £50,000 per person.
• Each £1 bond is entered into a monthly prize draw.

Each bond has a unique number. Every month, NS&I uses a random generator called ERNIE to pick winners from all the numbers out there. That’s how the prizes are decided.

And here’s the thing, you don’t earn “interest” in the usual way. You might win money. Or you might not. At all. That’s just how it is.

What prizes can you win?

Pretty wide range:

• Small prizes like £25.
• Bigger ones like £50, £100, even £500.
• And the headline grabber is £1 million.

Most winners get smaller amounts, while the big ones are very rare.

One recent month’s draw distributed over £406 million in prizes, including two £1 million payouts.

What are the odds of winning?

So what are your chances?

Right now, NS&I says the odds of any one £1 bond winning a prize in a month are roughly 1 in 22,000. That’s variable and can change with time.

Let’s put that in context:

• If you hold £1,000 worth of bonds, that’s 1,000 entries.
• But even then, you’re not guaranteed a prize; you could go months without anything.
• And if you hold just a small amount, say £10, your chances of winning over decades remain low. People have held such bonds for decades without wins.

Hence, more bonds will mean more chances. But luck still plays the biggest part. If you want guaranteed returns, this isn’t it.

Is this a good return?

NS&I often quotes something called a “prize fund rate” (e.g., around 3.6% — 3.8% variable). That’s not interesting; it’s a way of saying how much total value is paid out in prizes compared to total bonds held.

But understand that it doesn’t mean you get that. Some people go years with zero wins. Others get lucky. There’s no income stream, no guaranteed growth, it’s literally luck-based.

Tax and safety

Two simple good things about Premium Bonds:

Your original investment is secure as it is backed by the UK government. Any prizes you win are tax-free (no income tax, no capital gains tax).

That’s appealing if you’ve already used all your ISA allowances and want a tax-efficient place for more savings.

Can you buy Premium Bonds for children?

Yes, you absolutely can.

Here’s how it works:

• You need to be 16 or older to buy them under your own name.
• But you can buy bonds for a child under 16.
• Adults have to act as the responsible person for that child’s bonds until they turn 16.
• When the child reaches 16, they can take control and manage it themselves (often via online registration).

Kids have the same odds as adults; a £1 bond is a £1 bond. And yes, children have won big prizes before, even up to £50,000 and beyond.

Just one note: you can’t automatically roll winnings from one person’s bonds into another child’s bonds; you’d withdraw the cash first and then buy new bonds.

Accessing your money

This is simple:

• You can cash in some or all of your Premium Bonds at any time.
• There’s no penalty.
• It usually takes a couple of days to get the money into your bank account.

So if you need cash fast, you can pull out.

What if you or someone you love dies?

This part can feel bureaucratic, so let’s be clear:

• Premium Bonds don’t transfer directly to someone else like a gift.
• If the owner dies, the value becomes part of their estate.
• The executor will typically cash them in and distribute the money according to the will or intestacy rules.
• NS&I may keep the bonds in the monthly draw for up to 12 months after death (if a claim is made), but eventually the money is paid out.
• The bonds count toward inheritance tax calculations; they aren’t exempt from it.

There’s also a probate threshold for NS&I accounts (about £5,000 total across all their accounts). If bonds and other NS&I accounts exceed that, probate may be required. Hence, there are a lot of processes to follow for a bereaved family trying to claim a deceased relative’s money.

Also read: Why January Makes New Goals Feel Lighter Than the Rest of the Year.

So, should you get them?

That depends on you.

If you like a bit of fun, want your capital safe, enjoy the chance of a windfall, and don’t care about regular returns, Premium Bonds can make sense.

If you’re after reliable growth or guaranteed income, especially in a high-interest environment, then other savings options might serve you better.