Premium Bonds vs Cash ISA: how do they compare?

How do Premium Bonds work?

Premium Bonds are an NS&I savings product that pays no interest at all. Instead, every £1 Bond you hold is entered into a monthly prize draw, run using NS&I’s random number generator, ERNIE, with prizes from £25 up to two £1 million jackpots every month.

The prize fund rate is NS&I’s way of describing the size of that prize pool as a percentage of all the money held in Premium Bonds nationally, even though no individual saver is guaranteed to earn anything close to it. From the September 2026 prize draw, the prize fund rate is 4.35%, tax-free, and the odds of any single £1 Bond winning a prize in a given month are 21,000 to 1. NS&I announced the change on 18 August 2026, up from a 3.80% prize fund rate and odds of 22,000 to 1.

You need at least £25 to buy Premium Bonds, and you can hold up to £50,000 in total. All prizes are exempt from Income Tax and Capital Gains Tax, whatever you win and whatever your income. NS&I is backed by HM Treasury, so your original stake is not at risk in the way an investment can be, and you can cash Bonds in at any time with no notice period and no penalty.

Premium Bonds vs Cash ISA: what’s the actual difference?

The core difference is certainty. A Cash ISA pays a set interest rate, whether that is the variable rate on an easy access account or a rate guaranteed for the term of a fix, and every saver with the same balance earns the same return. Premium Bonds pay nothing to most holders in most months, and a lot to a small number of lucky ones, with the 4.35% figure only ever describing the average across everyone, not what you personally can expect.

The two also protect your money differently. Cash ISA deposits are covered by the Financial Services Compensation Scheme up to £120,000 per person per authorised institution, a limit that has applied since 1 December 2025. Premium Bonds are not a bank deposit, so the FSCS limit does not apply to them. Instead, NS&I is backed by HM Treasury directly. See our guide to ISA and FSCS protection for how the £120,000 limit works across banks and brands.

	Premium Bonds	Cash ISA
Return	Prize draw, 4.35% average prize fund rate from September 2026, tax-free	Set interest rate, tax-free, currently up to 4.50% AER (Chip, checked 29 September 2026) on easy access
Guaranteed to you personally	No	Yes
Protection	100% backed by HM Treasury	FSCS protected up to £120,000 per person, per institution
Minimum	£25	Varies by account, from £1
Maximum	£50,000 held in total	No cap on balance; new money capped by your annual ISA allowance
Uses your ISA allowance	No	Yes

If you have decided a Cash ISA suits you, see how to weigh a fixed rate against staying easy access.

Premium Bonds vs savings: how is this different from an ordinary account?

An ordinary, non-ISA savings account pays interest much like a Cash ISA does, but that interest can be taxable. How much of it is tax-free depends on your income, your tax band and your Personal Savings Allowance for the year. Money in a Cash ISA is never taxed this way, regardless of how much interest it earns.

Premium Bonds sit outside this system entirely. Every prize is tax-free by law, for every holder, at every income level, so there is no allowance to use up or exceed. That is one genuine similarity between Premium Bonds and a Cash ISA, and an advantage both hold over an ordinary savings account: neither ever creates a tax bill on what you earn, even though a Cash ISA guarantees what you earn and Premium Bonds do not. Our ISA versus savings account calculator can show the difference for your own numbers.

Do Premium Bonds use my ISA allowance?

No. Gov.uk lists four types of ISA: cash, Stocks and Shares, innovative finance and Lifetime. Premium Bonds are not one of them, so buying them has no effect on your £20,000 annual ISA allowance. You can hold the maximum £50,000 in Premium Bonds and still use your full ISA allowance in the same tax year on top of that, in a Cash ISA, a Stocks and Shares ISA, or a mix. If you are new to how the ISA allowance works at all, start with our guide to what an ISA is.

That makes Premium Bonds a genuine addition to an ISA rather than a competitor for the same allowance, even though the two are often compared as if you had to choose.

Premium Bonds prizes: what are the odds, really?

The 21,000 to 1 odds figure and the 4.35% prize fund rate both describe averages across every Premium Bond in existence, not a personal forecast. Some holders win nothing for months or years at a time. Others win small prizes fairly often, and a very small number win one of the two £1 million jackpots paid out each month.

NS&I does not publish a figure for what a typical individual saver actually receives over a given period, so we are not going to invent one here. What NS&I does confirm is the mechanism: more Bonds give you more entries into the same monthly draw, which improves your chances without changing the odds on any single £1 Bond, and the prize fund rate is simply the total prize pool expressed as a percentage of all the money held in Premium Bonds.

Premium Bonds vs Junior ISA: which suits a child?

Anyone over 16 can buy Premium Bonds for a child under 16, including a parent, grandparent or family friend, provided a parent or legal guardian is named as the “responsible person” who manages the Bonds until the child turns 16. A child can hold up to £50,000 in Premium Bonds, the same limit as an adult, and can have more than one responsible person if several relatives contribute.

A Junior ISA works differently. The annual subscription limit is £9,000 for the 2026/27 tax year, it can be held as cash, Stocks and Shares, or a mix of both, and nobody can access the money at all until the child turns 18, other than in exceptional circumstances such as terminal illness. Premium Bonds bought for a child have no such lock-in: the responsible person can cash them in for the child’s benefit at any time, with no notice period and no penalty.

The two are not mutually exclusive. A child can hold Premium Bonds and a Junior ISA at the same time, since, as above, Premium Bonds do not touch the ISA allowance.

Who tends to suit each?

This is general information, not personal advice, and it is not a recommendation to choose one over the other.

Premium Bonds tend to suit savers who like the idea of a monthly draw and are comfortable that their actual return could be nothing in a given month, or well above average, as long as their capital is not at risk either way. A Cash ISA tends to suit savers who want to know in advance what they will earn, whether that is a fixed rate for a set term or a variable easy access rate that can move but is never a lottery.

Neither is a substitute for a Stocks and Shares ISA, which invests in the stock market rather than holding cash, and can fall in value as well as rise. That is a different kind of risk entirely, and outside the scope of this comparison. See our guides to Stocks and Shares ISAs and Cash ISA versus Stocks and Shares ISA if you are weighing that decision instead. For free, impartial guidance on your own circumstances, MoneyHelper is a good place to start.