Premium Bonds prize rate rises to 4.35% – there's a catch

NS&I is raising the Premium Bonds prize-fund rate from 3.8% to 4.35% from the September draw – the second increase this year and the highest the rate has been since December 2024. The odds of any single £1 Bond winning a prize also improve slightly, from 1 in 22,000 to 1 in 21,000.

It's a genuine improvement, and it narrows the gap on standard savings noticeably. But before you move money across, it's worth being clear on what that 4.35% actually means – because most people won't earn it.

The prize-fund rate isn't your return

The 4.35% figure is the average paid out across the entire prize pot, not what a typical saver receives. The averages are dragged upwards by a small number of enormous prizes – including two £1 million payouts a month – which means the person with typical luck earns noticeably less than the headline rate. Someone with £1,000 in Bonds could easily win nothing at all in a year.

One quirk of the September changes worth knowing: NS&I is shifting the prize mix, with far more £50 and £100 prizes and fewer £25s. More prizes overall, slightly chunkier ones at the bottom end – but the fundamental lottery maths doesn't change.

Easy access still pays more – and it's guaranteed

The top easy-access accounts currently pay around 4.5%, with rates up to 5% available on balances of £5,000 or less. That's a guaranteed return: £45 a year per £1,000 saved at 4.5%, every year, no luck required.

If tax-free matters to you, the comparison gets even less flattering for NS&I. The top easy-access cash ISA currently pays 4.56% – higher than the new prize-fund rate, completely tax-free, and guaranteed. Premium Bonds' big selling point is that prizes are tax-free, but a cash ISA gives you the same tax treatment with none of the randomness.

You can see the current best rates below:

So who are Premium Bonds actually for?

There's one group for whom they genuinely stack up: savers with large cash holdings who've already used their £20,000 ISA allowance and are breaching their personal savings allowance. Basic-rate taxpayers start paying tax on interest above £1,000 a year (roughly £22,000+ in savings at 4.5%), and higher-rate taxpayers above £500 (roughly £11,000+). If that's you, tax-free prizes at an effective 4.35% pot rate start looking competitive against taxed interest at 4.5%.

For everyone else, the honest answer hasn't changed with this rise: a top easy-access account or cash ISA will beat Premium Bonds for most people, most of the time. If you understand you're likely to undershoot the headline rate and you enjoy the monthly draw anyway, that's a perfectly reasonable trade – just go in with your eyes open.

The verdict

A better deal than it was, still not the best deal available. Take the guaranteed 4.5%+ unless you've got a tax problem worth solving.