Jasmine Birtles
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Are Premium Bonds a Good Investment in 2025?
Ruby Layram
7th Jul 2025
Premium Bonds are one of those classic British savings products that everyone seems to bring up when you discuss good places to put your money. Maybe your gran bought you some as a baby. Maybe you’ve tucked away a few hundred quid “just in case”. Or maybe you’ve heard about them but never quite got round to figuring out what they actually are.
So, are Premium Bonds a good investment? Are they a bit old-school for the modern investor, or could they really work for you in 2025?
In this guide, we will explain everything you need to know so that you can make a confident investment decision.
What are Premium Bonds?
Premium Bonds are a savings product from NS&I (that’s National Savings & Investments, backed by the UK government).
Instead of earning interest, each £1 bond you own gets entered into a monthly prize draw.
Prizes range from £25 all the way up to a whopping £1 million. So it’s a bit like the lottery… except you never lose your money.
You can buy between £25 and £50,000 worth of bonds, and every month your bonds have a shot at winning tax-free cash. If you win, great. If you don’t, your money just sits there. No interest, no growth, just safe and sound in the background.
The Benefits of Premium Bonds
Let’s start with the good stuff. The main benefit of premium bonds is that all your winnings are tax-free, which is particularly attractive if you’re already using your ISA allowance elsewhere.
They’re also 100% backed by the UK government, so they’re very low risk. Your money is safe, even if NS&I somehow vanished off the face of the earth (highly unlikely, but hey, it’s nice to know).
Plus, Premium Bonds are super easy to manage.
You can cash them in at any time without fees, and the whole thing feels more exciting than your standard savings account. You never know, your numbers might come up in a prize draw.
There’s also a psychological element. Some people love the idea that their money is working and there’s a little bit of fun involved. It’s a tiny thrill each month when the prize draw rolls around.
The Drawbacks to Keep in Mind
Now for the less sparkly side. The biggest issue is that you’re not guaranteed any return at all. You could stash away £10,000 for years and never win a penny. Meanwhile, inflation is quietly gnawing away at the value of your money.
The current average prize fund rate is around 3.8% (as of June 2025), which sounds reasonable. But that’s an average. Some people win loads, most win nothing, and there’s no real way to predict which camp you’ll end up in.
So, if you’re someone who likes consistency and wants your money to actually grow over time, Premium Bonds might not be your best bet.
Are Premium Bonds an Investment?
Technically, not really. They’re more of a savings product with a lottery-style twist. There’s no compounding interest. No dividends. No capital growth. Just the possibility of winning money, with a government-backed guarantee that you won’t lose what you put in.
So if you’re looking to invest for long-term growth, think stocks, funds, property, Premium Bonds aren’t going to move the needle much.
But if you’re after capital preservation with a side of excitement, they can absolutely play a role in your wider financial plan.
Who are Premium Bonds Best For?
Premium Bonds are ideal for cautious savers who don’t want to risk their capital but wouldn’t mind the odd windfall. If you’ve already maxed out your ISA or want somewhere safe to keep an emergency pot (and you like a bit of a flutter), they might suit you perfectly.
They’re also a lovely gift for kids or grandkids. You can buy them in a child’s name and let the winnings, if any, build over time. It’s not going to fund university, but it could give them a nice little head start, or at least teach them about money in a fun way.
Also read: 5 Investment Gift Ideas
And finally, for higher-rate taxpayers or those worried about the taxman nibbling away at their interest, the fact that Premium Bond prizes are tax-free is a big selling point.
Final Thoughts
Are Premium Bonds a good investment? That depends on your goals.
If you’re looking for a low-risk, tax-free, government-backed way to stash some cash, and you don’t mind the fact that you might earn absolutely nothing, then yes, they can absolutely have a place in your portfolio.
But if you want to grow your money steadily over the years and beat inflation, you’ll want to look at other options like stocks and shares, index funds, or even fixed-rate savings accounts with guaranteed returns.
As with any type of investing, you capital is at risk. To learn more about investing, do sign up to our fortnightly MoneyMagpie Investing Newsletter. It’s free and you can unsubscribe at any time.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice.
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