UK Premium Bonds (Account Options)

Premium Bonds are a very unique type of account – a savings account crossed with a lottery. I think they’re pretty neat, and a nice, safe way of making short term savings a little fun.


Premium Bonds don’t have any parallel in the US, so a quick explanation of how they work: you deposit your money in the account via National Savings & Investment (NS&I), part of the UK government. Your capital is guaranteed by the UK government – if the government goes bust, you’ve got bigger problems, so this is about as safe as you can get. But you don’t get any guaranteed interest – instead, each £1 is entered into a monthly drawing to win prizes, ranging from £25 to £1 million. The “prize rate”, the total amount they pay out, is typically similar to a savings account, although at the time of writing in March 2021 it’s a bit better (1%, compared to 0.5% or less for a good savings account).

They’re also UK tax free, but fully taxable like a savings account in the US, which is a bummer when you win the £1 million.


Short term savings, the prize rate isn’t going to compete with an index fund.

They are a nice choice for emergency funds that you don’t completely immediate access to (NS&I can take a couple of days to move money to your current/checking account).

They’re also a responsible substitute for lottery tickets 🙂


UK residents age 16+ – you can also buy them for children. Note that you can’t keep them if you move back to the US, because of the way the US treats lotteries and gambling generally. No penalty, would just sell them and move the money elsewhere.

Investment Options

There are no different flavors of premium bonds, just the one product. NS&I does offer some other savings products that are similar to savings accounts from banks with similar interest rates – they do have the advantage of being backed by the UK government, rather than the £85,000 FSCS protection limit.

Risk & Return

Zero risk to capital, unless the UK government defaults.

Significant risk that inflation will be higher than the prize rate, or your actual winnings.

Some risk that you will be unluckier than average and win significantly less than the prize rate. The larger your investment, the closer you will likely get to the actual prize rate, because of the way the math works out. MoneySavingExpert has a handy calculator showing this – it’s a fairly simple concept but some heavy duty math.

Withdrawal Options

Withdraw anytime to your current account. NS&I does take a couple of days to move money (more like a US ACH transfer than your typical near-instant UK bank transfers).

You can choose for your winnings to be reinvested or paid out to your current account.

Contribution Limit

Maximum of £50,000 total balance in Premium Bonds per person – you can put that all in at once, or over time. Any winnings that bring your balance above £50,000 will be paid to your current account.



UK Tax Treatment – Contributions

Contributions are from post-tax money, no tax benefits.

UK Tax Treatment – Withdrawals

UK tax free, even if you win £1 million. If you’re over the Personal Savings Allowance, this is an additional benefit, even with more typical £25 prizes.

US Tax Treatment – Contributions

Contributions are from post-tax money, no tax benefits.

US Tax Treatment – Withdrawals

Fully taxable like interest on a savings account. And since there’s no UK tax, there won’t be any Foreign Tax Credits to offset it (unless you happen to have other passive category tax credits, including carryover).

Further Reading

MoneySavingExpert on Premium Bonds

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