How do Premium Bonds work?

Premium Bonds are one of the country’s favourite savings products, with over £127 billion invested in them.

In June’s prize draw alone, there were 5.9 million prizes, worth more than £416 million.

Premium Bonds differ from traditional savings accounts insofar as they don’t pay a guaranteed interest rate. Instead, bondholders are entered into a monthly prize draw where they can win prizes worth up to £1 million. You do not have to pay tax on your winnings.

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The scheme was launched by National Savings & Investments (NS&I) in 1957 as a way of helping people start a good savings habit. Since then, more than 749 million prizes worth over £35 billion have been awarded in total, according to data from NS&I.

The top prize hasn’t always been £1 million – this was first introduced in 1994. Since then, there have been 548 jackpot winners. Two new bondholders are welcomed into the millionaire club each month, while millions of other prizes are paid out.

If you’re lucky enough to win the jackpot, you will receive a visit from Agent Million, an elusive NS&I employee whose job it is to venture across the country to inform winners of their newfound wealth.

Don’t despair if you haven’t had a knock at the door, though, as you could still be in with a chance of a windfall.

Lots of smaller prizes are up for grabs each month too, worth between £25 and £100,000.

Savers can use NS&I’s prize checker tool from the second working day of the month to check if they have won anything in the prize draw.

We look at how Premium Bonds work and whether they are worth investing in. Here’s everything you need to know.

How do Premium Bonds work?

NS&I Premium Bonds are a savings product that's backed by the UK government. The unique appeal of the product is that it gives you the opportunity to save money while participating in a monthly prize draw.

Prizes start at £25 and go up to £1 million, with two people becoming millionaires each month.

The main difference to traditional savings accounts is that returns aren't guaranteed, and anything you do win is tax-free.

Each £1 bond comes with a unique number and represents a chance to win a prize. Every single bond has an equal chance of winning, but the more bonds you hold, the greater your chances of receiving a prize.

One of the most appealing aspects of Premium Bonds is the security they offer. As the UK government backs them, the investment is considered to be risk-free and the amount you have invested in NS&I is always safe.

How much can I invest?

The maximum you can hold in Premium Bonds is £50,000. The minimum is £25. You can buy Premium Bonds through the NS&I website, over the phone or by post.

To apply over the phone, call NS&I for free on 08085 007 007.

To apply by post, print and complete an application form and return it with a cheque payable to NS&I. Further instructions and the application form can be found on the NS&I website.

It is also possible to buy Premium Bonds as a gift for a child. The parent or guardian named on their application looks after the child’s bonds until their 16th birthday, regardless of who bought them.

How much can I earn?

There is no guaranteed return or regular income with Premium Bonds. Instead, you are entered into a monthly prize draw where you can win between £25 and £1 million.

You may have heard of the prize fund rate. This benchmark is used by NS&I to set how many prizes should be given away every month. The figure you see is an average rate for someone with average luck.

Some people will earn more, especially if they scoop a big prize, while others will win nothing. It’s important not to get the figure confused with a conventional interest rate that you would see on a typical savings account.

The Premium Bonds prize fund rate currently sits at 3.8%, but has been much higher in recent months. The prize fund rate was 4.15% in December 2024 and fell to 4% in January 2025. It was then cut further to 3.8% from April 2025 onwards.

In recent history, the prize fund rate reached a high of 4.65% in September 2023. Before that, the rate languished at a low of between 1% and 2% from the financial crisis in 2008 until October 2022.

As well as the prize fund rate, NS&I also publishes the odds of winning. The odds are currently 22,000 to 1 for every £1 bond.

Are Premium Bonds right for me?

Swapping a guaranteed interest rate for the chance of winning a prize might not appeal to everyone, but Premium Bonds can act as a useful diversifier within a wider portfolio.

Every penny spent on Premium Bonds is backed by the government. For this reason, many investors put considerable amounts into NS&I products. The more bonds you hold, the greater your chances of winning a prize.

The tax-free status of the prizes is also appealing for any savers worried about busting their personal savings allowance and having to pay tax on their interest. This is particularly the case for higher-rate and additional-rate taxpayers with large amounts of cash savings.

However, recent data has shown that 63% of bondholders have never won a single penny from their Premium Bonds, raising questions about whether they are the best place for savers to put their cash.

The data also emphasised how those who put a lot in the savings vehicle are more likely to win as 80% of payouts between March 2024 and February 2025 went to people who had already won at least once in that time period.

The average holding for those who won was £23,397, compared to the average holding for all Premium Bonds holders of £5,406.

If you like the idea of winning big but are also comfortable with winning nothing at all, then Premium Bonds could be right for you. Alternatively, if you want a guaranteed level of interest and the certainty that your savings will stay ahead of inflation, then it’s probably best to avoid them.

How are the prizes drawn?

Much like how lottery balls are drawn from a machine, NS&I has its own computerised random number generator, ERNIE. This Electronic Random Number Indicator Equipment has generated the numbers used in draws since 1957. ERNIE is currently on its fifth iteration and is more high-tech than ever.

ERNIE 5 is powered by quantum technology, which uses light to run the sums far quicker than a conventional computer. It takes 12 minutes for ERNIE to generate the random numbers for a prize draw.

The prize draw is entirely random with each £1 bond having an equal chance of winning a prize each month.

A spokesperson for NS&I told MoneyWeek that, in order to maintain a fair outcome, the Government Actuary's Department carries out an independent check each month to ensure that the Premium Bonds prize draw is fully random.

How do I find out if I’m a Premium Bonds winner?

Once ERNIE has done his magic, the winners are notified through a variety of channels. Jackpot winners usually find out on the first working day of the month, and winners of the runner-up prizes can usually check one day later.

Two of the easiest ways to check for Premium Bond prizes are the online NS&I prize checker and the official prize checker app, available on either Android or iOS.

Who is Agent Million?

If you are a £1 million winner, you will get a knock on the door from Agent Million. The elusive millionaire maker is actually one of a number of anonymous NS&I employees whose job is to track down the lucky winners who have scooped the top prize.

Winning that kind of money can be life-changing, and Agent Million is there to ensure the winner has all the information they need to manage their newfound wealth carefully in the days and weeks after the win.