Putting £20k in Premium Bonds is generally worth it if you are a higher-rate taxpayer looking for tax-free, safe, and accessible emergency funds, as prizes are tax-exempt. With an annual prize fund rate of 3.6% (as of Aug 2025), it offers potential, but not guaranteed, returns. For non-taxpayers or those looking for guaranteed income, competitive cash ISAs or savings accounts usually offer better returns.
The True Cost of Loyalty
For example, a saver with £20,000 in Premium Bonds might expect to earn £720 less per year compared to what they could earn in a 5% easy-access savings account, assuming they never win. Over five years, that's £3,600 in foregone interest—without accounting for the impact of inflation.
If you have £1,000 or less in Premium Bonds, it's more likely than not that you won't win anything over the course of a year. If you have £5,000 in Premium Bonds, you might expect to win roughly £150 over a year if you have average luck. But if you put £5,000 in a savings account paying 4.3%, you'd earn £215 in a year.
Warren Buffett views bonds as a safe haven for cash, often recommending a 90/10 portfolio (90% S&P 500 index fund, 10% short-term government bonds) for average investors, while Berkshire Hathaway itself holds large amounts of U.S. Treasury bills for capital preservation and to earn competitive yields, especially when stocks are expensive. He favors short-term Treasuries (T-bills) due to low interest rate risk and high liquidity, using them to park cash while waiting for better stock opportunities, rather than as a primary growth engine.
Interest Rates and Returns: Bonds often have higher interest rates than CDs. Liquidity and Access to Funds: CDs typically incur penalties for early withdrawals, while bonds can be sold before maturity without penalty; however, you may incur a loss if the price of the bond is below the purchase price.
EE bonds you buy now have a fixed interest rate that you know when you buy the bond. That rate remains the same for at least the first 20 years. It may change after that for the last 10 of its 30 years. We guarantee that the value of your new EE bond at 20 years will be double what you paid for it.
However, remember that the maximum amount you can invest is £50,000, and, much like gambling, there's a chance you won't win anything at all. This means Premium Bonds are no good if you want a regular income. Moreover, inflation will eat into your savings over time if you don't win regularly.
Government bonds tend to be effective SHs during downturns triggered by macroeconomic or financial market events, as these downturns are typically associated with lower inflation and interest rates. Conversely, geopolitical conflicts often diminish the SH properties of government bonds.
Reinvested into more Bonds
If you have less than the maximum invested then using your winnings to buy more Bonds can be a great way of boosting your chances of winning again. Choose this option and we'll automatically reinvest the prize money for you.
The reason why the majority of Premium Bonds savers have never won a prize is likely because a large number of Premium Bond holders have very low account balances, with AJ Bell finding that 14 million people (around 60% of all holders) have accounts with a balance of less than £100.
The best investment during inflation is gold. REITs, inflation-indexed bonds and mutual funds, and consumer staple equities are also good options to combat the effects of inflation on your portfolio.
Disadvantages of Premium Bonds
No Guaranteed Returns: Unlike traditional savings accounts, there's no certainty of earning anything. Low Odds of Winning: The current odds of winning a prize are 24,000 to 1 for each £1 bond.
Invest 90% of your liquid assets in a low-cost S&P 500 index fund (Buffett recommended Vanguard's). Buffett argues that stocks will continue to provide higher returns over the long run than bonds or cash. Invest the remaining 10% in short-term government bonds such as U.S. Treasury bills.
And to go one step further, we recommend dividing your mutual fund investments equally between four types of funds: growth and income, growth, aggressive growth, and international.
Federal Reserve data shows that about 23% of Americans have no debt.
Treasury securities are considered one of the safest investments because they are backed by the U.S. government. They're issued in different maturities, ranging from a few days to 30 years, allowing investors to choose the term that best fits their investment goals.
Treasury bills have a greater variety of maturity lengths, ranging from four to 52 weeks. Treasury bonds have the longest maturities, which are set at 20 and 30 years. Treasury bills don't pay interest payments, and pay off when they mature or are sold. Treasury bonds will pay you interest twice a year.
I bonds, with their inflation-adjusted return, safeguard the investor's purchasing power during periods of high inflation. On the other hand, EE Bonds offer predictable returns with a fixed-interest rate and a guaranteed doubling of value if held for 20 years.