What Are Premium Bonds: Prizes, Tax, and Eligibility

Premium Bonds are a savings product sold by National Savings and Investments (NS&I), the UK government’s savings arm. Instead of paying interest, they enter your money into a monthly prize draw for tax-free cash prizes between £25 and £1 million. Your original stake is protected by HM Treasury, so you can cash in at any time for exactly what you put in. More than 24 million people in the UK hold them.

How the Product Works

Every £1 you put in buys one bond, and each bond has its own unique number that acts as a separate entry into the draw. You are not earning interest in the usual sense. The interest the pooled money would have generated is collected into a prize fund and paid out each month as tax-free prizes to randomly chosen bondholders.¹

Your capital does not rise or fall. Put in £1,000 and you can withdraw £1,000, because NS&I is backed by HM Treasury and carries a government guarantee that commercial banks cannot offer.¹ The trade is simple: you give up a guaranteed rate of interest for the chance of winning something bigger. The product sits on legal footing that goes back to the Premium Savings Bonds Regulations 1972, made under the National Debt Act 1958, and the money raised helps the government fund public borrowing.²

The Monthly Prize Draw

Winning numbers are generated by ERNIE (Electronic Random Number Indicator Equipment). The current version, ERNIE 5, uses quantum light technology to produce random numbers, which are then matched against eligible bond numbers to select winners.³

Every bond number has an equal chance in every draw, regardless of when it was bought. New bonds have to be held for one full calendar month before they enter, so bonds bought in January first appear in the March draw.¹

Prize Fund Rate and Odds

The prize fund rate sets how much money flows into each month’s pool. It ran at an annual 3.60% through the March 2026 draw and drops to 3.30% from the April 2026 draw onward.⁴ That figure is not what any individual holder earns. It is the percentage of all bonds in issue that funds the prize pool over a year. What you actually get depends on whether your numbers are drawn.

The odds of any single £1 bond winning a prize in a given month change alongside the rate. They ran at 22,000 to 1 and lengthen to 23,000 to 1 from the April 2026 draw.⁵ Because each £1 is a separate entry, someone holding the maximum £50,000 has far more chances each month than someone with £100.

What You Can Win

Each month’s pool is split three ways: about 10% funds the higher-value prizes from £5,000 to £1 million, about 10% covers the £500 and £1,000 tier, and roughly 80% pays the smaller £25, £50, and £100 prizes. The March 2026 draw paid out more than 6.2 million prizes across these bands:⁶

£1,000,000: 2 prizes
£100,000: 78 prizes
£50,000: 156 prizes
£25,000: 313 prizes
£10,000: 782 prizes
£5,000: 1,563 prizes
£1,000: 16,424 prizes
£500: 49,272 prizes
£100: 1,746,689 prizes
£50: 1,746,689 prizes
£25: 2,659,353 prizes

Most winners receive £25 or £50. Two £1 million jackpots are still drawn each month after the rate change, though the estimated number of prizes at most other tiers falls.⁶ The jackpot winners are notified in person by an NS&I representative known as Agent Million.

Prizes Are Tax-Free

Every Premium Bond prize is free of UK income tax and capital gains tax, from £25 up to £1 million. Section 757 of the Income Tax (Trading and Other Income) Act 2005 states that a prize won in a Premium Bond draw “is not income for the purposes of the Income Tax Acts.”⁷ You do not declare winnings on a tax return.

That tax treatment is a large part of the appeal for higher-rate and additional-rate taxpayers. A basic-rate taxpayer may get a similar outcome from an ordinary savings account once the Personal Savings Allowance is factored in, but someone paying 40% or 45% on savings interest can find the effective return from Premium Bonds more competitive because prizes are not taxed at all.

Who Can Hold Them and How Much

Anyone aged 16 or over with a UK bank account can buy Premium Bonds. You need a debit card from a UK bank or building society, and the bank account must be registered to your current address.¹ There is no UK citizenship requirement, though the UK bank account rule limits practical access.

Adults can also buy bonds for any child under 16, whether or not they are related. The adult manages the account until the child turns 16, when NS&I contacts them to take over.¹

The minimum purchase is £25, and any later top-up must also be at least £25. The maximum any one person can hold is £50,000 in total face value, including bonds bought with reinvested prizes. If holdings pass £50,000 through reinvestment, the excess bonds are not eligible for prizes and NS&I can reclaim any prize paid on them.¹ The same £50,000 limit applies to a child’s holding.

Buying, Prizes, and Cashing In

The quickest way to buy is through the NS&I website. You will need your National Insurance number, UK bank account details, a debit card, your date of birth, and your current address, and the details have to match official records exactly for the identity check to pass.⁸ You can also apply by phone on 08085 007 007 or by post.⁹

When you apply, you choose how prizes are paid. They can go straight into your linked bank account, or they can be reinvested into new Premium Bonds. Reinvested prizes buy bonds that enter the very next draw, subject to the usual calendar-month wait.¹ You can switch between the two options at any time in your online account.

You can check winnings through NS&I’s online prize checker or mobile app, or by calling or writing to NS&I. Prizes never expire, so if you moved house or lost touch, older wins are still claimable.¹⁰ Cashing in is done through your online account, by phone, or by post, either in full or in part, with the money returning to your linked bank account.

A Note for US Taxpayers

The UK tax exemption does not follow the money across borders. If you are a US citizen, green card holder, or US tax resident, the IRS generally treats Premium Bond prizes as taxable income to be reported on your federal return. Holding the account may also trigger foreign account reporting: an FBAR (FinCEN Form 114) filing if your foreign financial accounts combined exceed $10,000 at any point in the year,¹¹ and potentially Form 8938 under FATCA, which begins at $50,000 year-end or $75,000 at any point for single filers in the US, with higher thresholds for joint filers and for taxpayers living abroad.¹²

1
NS&I. Premium Bonds
2
Legislation.gov.uk. The Premium Savings Bonds Regulations 1972
3
NS&I. All About Premium Bonds
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NS&I. Interest Rates
5
National Savings and Investments. NS&I Reduces Prize Fund Rate and Lengthens Odds for Premium Bonds
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NS&I. How We Share Out Premium Bonds Prizes
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Legislation.gov.uk. Income Tax (Trading and Other Income) Act 2005
8
NS&I. Evidence of Identity
9
NSandI. Register by Post
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NS&I. How to Check for Unclaimed Prizes
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FinCEN. Report Foreign Bank and Financial Accounts
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Internal Revenue Service. Do I Need to File Form 8938, Statement of Specified Foreign Financial Assets