With Premium Bonds Prize Fund Rate Set To Be Cut, Are They Really Still a Viable Option for Savers?
News that the Premium Bonds prize fund rate will be cut from 3.8% to 3.6% in August 2025 has sparked renewed debate over their value. While Premium Bonds remain a beloved fixture in many British savers’ portfolios, it may be time to reassess whether they truly deliver for the majority of people.
What’s Changing?
NS&I’s decision to reduce the prize fund rate to 3.6% brings Premium Bonds back down to the levels last seen in 2022, far removed from their peak of 4.65% in September 2023. This cut comes despite continued high interest rates in the wider market.
Most People Never Win
According to data obtained by AJ Bell via a Freedom of Information request, nearly two-thirds of Premium Bond holders—equivalent to around 14.4 million people—have never won a single prize. Despite a total of £127.7 billion currently held in Premium Bonds, the average saver holding just £5,406 is unlikely to see any meaningful return.
The True Cost of Loyalty
Premium Bonds may be popular, but they’re far from the best value. The top easy-access savings accounts currently pay around 5% interest (as of June 2025). That’s a significant difference compared to the Premium Bond prize rate of 3.6%—and even that figure is an average based on ‘average luck’, which few people actually experience.
For example, a saver with £20,000 in Premium Bonds might expect to earn £720 less per year compared to what they could earn in a 5% easy-access savings account, assuming they never win. Over five years, that’s £3,600 in foregone interest—without accounting for the impact of inflation.
Investing: The Superior Long-Term Strategy
For those with surplus cash that won’t be needed in the near term, investing can offer significantly better long-term returns. Over the last 10 years, the FTSE All-World Index has delivered an annualised return of approximately 9.5% (to 31 May 2025), even after periods of volatility. With compounding, that kind of growth can be transformational.
To illustrate: £10,000 invested with a 9.5% annual return becomes over £24,700 after 10 years. In contrast, £10,000 saved in Premium Bonds with no wins remains just that—£10,000. Even in a 5% savings account, the return would be just over £16,300 before tax.
When Might Premium Bonds Still Make Sense?
There are still some scenarios where Premium Bonds can appeal:
– Higher- or additional-rate taxpayers who’ve exhausted their personal savings allowance may value the tax-free nature of prizes.
– Risk-averse individuals who want to avoid even the minimal risk of bank failure may prefer the direct government backing of NS&I.
– Those who enjoy the idea of ‘gambling’ on a £1 million prize might find them exciting—but they must be willing to accept the very real possibility of earning nothing.
Final Thoughts
With most Premium Bond holders never winning and the prize fund rate falling below inflation and current savings rates, it’s time for savers to consider alternatives. Whether it’s moving to a better-paying savings account or investing for long-term growth, there are likely to be more rewarding homes for your hard-earned money.
As always, if have Premium Bonds and would like to consider your options – or if you’d like help reviewing your overall savings or making a plan for long-term financial growth, we’re here to help.