I'll be honest: when I first saw the NS&I announcement, my instinct was to shrug. Premium Bonds have had a rough few years for anyone who's paying attention to the numbers. But this one's different — and depending on your tax situation, it might actually matter quite a bit.
From the July 2026 draw, the Premium Bonds prize-fund rate is rising from 3.30% to 3.80%. That's a 50 basis-point jump, and it's the first rate increase NS&I has made in almost three years. After six consecutive cuts from a peak of 4.65% back in September 2023, they've finally started moving in the other direction.
So — big deal or not?
I had premium bonds as a kid, thanks to my mum and dad, they bought both myself and my sister some, they never won anything as there was only about £30's worth for each of us, even after being in my possession for over 20 years. Fast forward another 30 years and I found myself talking to my late father in law about them, he actually had an effect on me getting my finances in order having seeing him investing in individual stocks, it sparked in interest in me to learn more.
One of our conversations revealed that he had maxed out both his and my mother-in-laws premium bond allowances, and this was when the whole idea of them came to the forefront again for me, he did eventually cash them all in and re-invest the money elsewhere, but he actually did ok in terms of annual returns and winnings from them for a while.
What's Actually Changing
The headline number is the prize-fund rate going to 3.80%. But there are a couple of other improvements worth noting too.
The odds of any single £1 bond winning a prize are shortening from 1 in 23,000 to 1 in 22,000. That might sound marginal, but across the full prize pot it means approximately 322,000 more prizes in the July draw compared to May 2026. The total prize pot for July is estimated at around £436.8 million, with 12 additional £100,000 prizes, 24 more £50,000 prizes, and 49 extra £25,000 prizes. The two monthly £1 million jackpots stay the same.
NS&I says the move is "a response to changes in the wider savings market" and its 2026–27 government net financing target. In plain English: the Government wants more money flowing into NS&I, so they've made the product slightly more attractive.
Why Most People Are Still Better Off Elsewhere
Here's the thing — even at 3.80%, Premium Bonds are still well behind the best easy-access savings accounts on the market. As of late June 2026, the top easy-access rate sits at 5.01% AER (Oxbury Bank, though that includes a variable bonus that drops after December). Even stripping out bonus rates, you can find easy-access accounts paying solidly above 4% without much effort.
For a basic-rate taxpayer with, say, £10,000 in savings, the maths is pretty straightforward:
Easy-access at 5.01%: ~£501 in interest over a year (guaranteed)
Premium Bonds at 3.80%: average prize winnings of ~£380 — but that's only an average, and you might win nothing
The prize-fund rate isn't a guarantee. It's what you'd earn on average if you held the maximum balance (£50,000) for a long time. Smaller balances experience much more variance — you could get lucky, or you could end up with a fraction of the average.
For most straightforward savers, the guaranteed interest of a good easy-access account beats the lottery element of Premium Bonds. That's not a new conclusion — but it's worth restating clearly when the headlines start getting breathless about the NS&I announcement.
The Twist: Tax Changes Everything for Some Savers
Here's where it gets more interesting — and where the Premium Bonds rate rise is actually meaningful news for a specific group of people.
All Premium Bonds prizes are completely tax-free. There's no income tax on winnings, regardless of how much you hold or what tax band you're in.
Compare that with a savings account. The Personal Savings Allowance (PSA) gives basic-rate taxpayers £1,000 of interest tax-free per year, and higher-rate taxpayers just £500. Additional-rate taxpayers (earning over £125,140) get nothing — every penny of savings interest is taxable.
With savings rates still relatively high, a lot of people have quietly crossed into taxable territory for the first time. A higher-rate taxpayer earning 4.5% on a savings account hits their £500 PSA limit with barely over £11,000 saved. If you've got more than that outside an ISA, you're handing a chunk of your interest straight to HMRC at 40%.
In that situation, the arithmetic on Premium Bonds looks very different. A higher-rate taxpayer earning 4.9% on a savings account, on £30,000, would pay 40% tax on roughly £1,170 of interest above their PSA — effectively reducing their real return to somewhere around 3.9%. Suddenly, a tax-free 3.80% prize rate (on average) is comparable — and any luck on top of that is pure bonus.
For additional-rate taxpayers who've also maxed their ISA allowance, the case is even stronger. Every pound of savings interest they earn is taxed at 45%. Premium Bonds — where there's no tax at any level — become a genuinely sensible option.
So Should You Switch?
The honest answer: it depends on your situation. Here's a rough way to think it through.
Stick with a savings account if:
You're a basic-rate taxpayer with savings well under your PSA limit
You haven't maxed your ISA — if you can get a 4.72% cash ISA, that's better than Premium Bonds and still tax-free
You find the unpredictability of prize draws stressful (some people genuinely do)
Consider Premium Bonds more seriously if:
You're a higher-rate or additional-rate taxpayer
You've used your full ISA allowance for the year
Your savings interest is already pushing above your PSA threshold
You have close to the £50,000 maximum to put in — the more you hold, the closer your average return tracks the headline rate
The maximum holding per person is £50,000, so if you're in a couple you could shelter up to £100,000 in Premium Bonds between you — all completely outside the tax system.
A Note on What Comes Next
The Bank of England held its base rate at 3.75% in June 2026, but two further cuts are expected later in the year. If rates do come down, commercial banks will likely trim their savings rates in response. NS&I, meanwhile, has its own Government financing targets to meet — which means its rate decisions don't always follow the same logic as a commercial bank. The July rise is proof of that.
I wouldn't assume Premium Bonds will keep climbing. But I'd also stop writing them off as a no-brainer loser. For the right person, at the right balance, they're worth a proper look.
Final Thoughts
The Premium Bonds prize-fund rate rises to 3.80% from the July 2026 draw — the first increase since September 2023
Odds also improve: from 1 in 23,000 to 1 in 22,000 per £1 bond
Easy-access savings still pay more (up to 5.01% AER) — for most basic-rate taxpayers, a savings account wins
But the tax-free nature of Premium Bonds makes them genuinely competitive for higher-rate and additional-rate taxpayers who've used their ISA and PSA
The more you hold (up to £50,000 per person), the closer your actual returns track the headline rate
With further Bank of England rate cuts expected, the gap between savings rates and Premium Bonds may narrow further in the second half of 2026
This article is here to give you some information and is for educational purposes only. It is not meant to give you financial advice. It is always a good idea to chat with a financial adviser who knows you well and can help you make the best decisions for your situation.
