You can big prizes up to £1million in the Premium Bonds monthly prize draw
Martin Lewis shared some thoughts on Premium Bonds on his BBC podcast(Image: ITV)
Martin Lewis has explained a case where Premium Bonds are a good choice to build your savings. He said that while he is “not generally the biggest fan” of the NS&I scheme, they can be a good option in certain situations.
The consumer expert shared his thoughts on Premium Bonds after a person called into his BBC podcast to ask for some help about how to build up their savings. They said they were not particularly wealthy but had done well in their career as a lawyer, and were now lucky to be in the additional rate tax bracket, meaning they are earning more than £125,140 a year. They wanted to know what rules they should know about as they look to manage their finances prudently.
‘Far better value’
Responding to the question, Mr Lewis said that Premium Bonds are worth a look. He said: “For someone like you, ISAs and Premium Bonds become even far better value. ISAs, far better value; Premium Bonds become decent value. And the reason is, of course, you do not have a personal savings allowance.”
The personal savings allowance dictates how much you can earn in interest from your savings accounts each tax year. For basic rate taxpayers, you can earn up to £1,000 each year, while for those on the higher rate, it drops to £500. Meanwhile, those on the additional rate get zero allowance.
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This makes the tax-free nature of ISAs and Premium Bonds particularly attractive. Any interest earnings or investment growth within an ISA is tax-free, while any prizes you win on your Premium Bonds will also never incur an HMRC bill.
The risk with Premium Bonds is you have no guarantee of winning a prize and if you don’t, the value of your holdings just stays the same. So the purchasing power of your holdings drops because of inflation, and you also miss out on any growth you could have had if you’d put it in a savings account or in investments.
‘Much better rate’
But Mr Lewis said they can be a good choice if you have a decent chunk put in. He told the listener: “You’ll know I’m not generally the biggest fan, but the Premium Bond prize fund rate is 4.35%. If you’re putting a decent whack in, so getting close to the £50,000, but really anything above £5,000, £6,000, £7,000, then you’re going to be earning roughly, based on typical luck, the median average payout will be somewhere in 3.5%, 3.6%, 3.7%, which actually, compared to normal savings, which would be taxable for you is actually a much better rate than you’re going to get anywhere else barring an ISA, if you’re using savings for an ISA.”
Each £1 Bond that goes into the monthly prize draw has the same chance of winning a prize, with the odds of winning currently at 21,000 to one.
Budget tax increase to consider
If you do pay tax on your interest earnings, it’s worth factoring in some changes announced in the Autumn Budget 2026 by Chancellor John Healey. The tax rate that applies was already set to increase by 2 percentage points across all tax bands, from April 2027.
But the Government has decided to add another 2 percentage points on top of this. This means for April the tax rate you will pay will increase from:
- Basic rate taxpayers – from 20 per cent to 24 per cent
- Higher rate taxpayers – from 40 per cent to 44 per cent
- Additional rate taxpayers – from 45 per cent to 49 per cent.
You can listen to the podcast in full on the BBC Sounds website.
