Last updated: 21 June 2026
By Stiv · Design, technology and personal finance
This article contains affiliate or referral links. If you click through and sign up I may earn a commission or referral bonus at no extra cost to you. It does not affect my editorial view.
This is not financial advice. It reflects my own experience, so please do your own research or speak to a qualified adviser before making any money decisions.
Capital at risk. The value of investments can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future results.
Premium Bonds vs investing: a prize draw, or the stock market?
Premium Bonds vs investing is a money question I get all the time. So here is my honest, first-person take, because I have held both at once for four years. Crucially, this is not an either or for everyone. In my experience, the two really answer different questions.
Want the hands-off investing option?
Maybe you want investing that mostly runs itself, like the Premium Bonds draw does. In that case, a ready-made managed portfolio is the closest fit. The current JPMorgan offer, and how to claim it, are kept up to date on our referral page.
See the JPMorgan investing offer
The basics
How Premium Bonds actually work
No interest, just a monthly prize draw. Here is the mechanic in plain words.
Premium Bonds come from National Savings and Investments, or NS&I. You can hold from £25 up to £50,000, and over 22 million people own some. Importantly, you do not earn interest. Instead, every £1 bond goes into a monthly prize draw, and prizes run from £25 up to £1 million.
On top of that, each month there are two £1 million jackpots. NS&I then shares out the rest of the pot in smaller amounts, and all prizes are completely tax-free. You can cash in whenever you like. That said, the money usually takes up to three banking days to arrive in your account.
NS&I sets a prize fund rate that funds the draw. From the July 2026 draw, it rises to 3.80% tax-free, up from 3.30%. At the same time, the odds shorten to 22,000 to 1 for each £1 bond. You can always check the live terms on the official NS&I Premium Bonds page.
One more thing matters a lot here. Premium Bonds are 100% backed by HM Treasury, so your capital is as safe as it gets. However, they are not covered by the FSCS, simply because they do not need to be.
Returns
Premium Bonds: the return you actually get
The headline rate and the typical experience are not the same thing.
Here is the bit that trips people up. The 3.80% prize fund rate is an average across all bonds, not a rate you are guaranteed to get. Because a few people win huge prizes, those big wins drag the average upwards. So a typical holder, with average luck and a smaller balance, usually earns less than the headline rate.
In reality, plenty of months you win nothing at all. In four years of holding Premium Bonds, I have won around £300 in total. That is fine, and the prizes are tax-free, but it is not the same as a steady 3.80%. For a clear, neutral explainer, MoneyHelper has a useful guide to Premium Bonds.
The chance of the £1 million is also tiny. With two jackpots a month and 22 million holders, the odds of landing one are very long indeed. Honestly, I treat any big win as a fun maybe, never a plan.
The other side
How investing works, and what it can return
Real growth potential, but real risk, usually wrapped in an ISA.
By contrast, investing is a different game. Typically, you buy shares, funds or exchange-traded funds (ETFs), very often inside a stocks and shares ISA. Your money can then grow in two ways: the price can rise, and many holdings pay dividends.
There is no set rate, though. Returns vary year to year, and some years are negative. Over the long run, global shares have historically returned more than cash. Even so, the ride includes real ups and downs. New to this? My guide on how to start investing and my beginner's guide to investment risk walk through the basics.
Ultimately, the trade-off is simple. You take on risk in exchange for the chance of higher growth. Your capital is genuinely at risk, and you could get back less than you put in. On protection, the wording is precise: Eligible investments are protected up to £85,000 per person per FCA-authorised firm by the FSCS. Crucially, that covers a firm failing, not your investments falling in value.
For context, I use JPMorgan Personal Investing (FRN 552016) and Freetrade (FRN 783189). Both are authorised by the Financial Conduct Authority. You can confirm each on the FCA Register for JPMorgan Personal Investing and Freetrade.
On tax, it cuts both ways. Premium Bonds prizes are tax-free, while investment gains and dividends may be taxable outside an ISA. Tax treatment depends on the individual circumstances of each client and may be subject to change in future.
Premium Bonds vs investing at a glance
Here is the quick comparison I wish someone had shown me early on. It is general, not advice, and your own numbers will differ.
| Feature | Premium Bonds (NS&I) | Investing (shares, funds, ETFs, usually via an ISA) |
|---|---|---|
| How you earn | A monthly prize draw, not interest. Prizes from £25 to £1m, all tax-free. | Capital growth plus any dividends. Returns vary and are not guaranteed. |
| Typical return | 3.80% prize fund rate from July 2026. It is an average, so many win less or nothing. | No set rate. Long-run global shares have historically returned more, with falls along the way. |
| Capital risk | None. You cannot lose the money you put in. | Capital at risk. The value can fall and you may get back less. |
| Access | Easy access, but cashing in takes up to three banking days. | Usually sellable within days, though selling in a dip locks in a loss. |
| Tax | Prizes are tax-free. | Gains and dividends may be taxable outside an ISA, and tax-free inside one. |
| Protection | 100% backed by HM Treasury. Not FSCS. | FSCS investment protection: £85,000 per person per FCA-authorised firm. |
| Best job | Safe cash you might need soon, plus a flutter with no downside. | Money you will not need for five years or more, aimed at growth. |
Premium Bonds protect your money. Investing tries to grow it. They answer two different questions.
My experience
What I actually do with my own money
First-person and honest, including the bits that make me nervous.
So where does my money sit? Honestly, most of it is now invested. Over the same years, investing has clearly won out for me. Across my pots, my JPMorgan return is north of 100% on a time-weighted basis as I write. That figure includes pensions I have held for well over a decade. My self-managed Freetrade pot is up even more. Even so, it carries far more risk.
I want to be clear, though. That is not typical, my pots sit in the highest risk band, and it could easily have gone the other way. Investing is not for the faint-hearted, and everyone should seek proper financial advice. Capital at risk applies, every single time.
Safe cash
Why I drifted from Premium Bonds to Chip
My rainy-day cash has quietly moved, and the wins surprised me.
For safe cash, I have actually drifted away from Premium Bonds. Most of my rainy-day money now sits in a Chip Prize Savings account instead. On a much smaller balance, I have won about £190 with Chip in 18 months. By comparison, Premium Bonds gave me roughly £300 over four years.
Why the switch? For me, the withdrawals are near instant, and the small wins land more often. Premium Bonds, by contrast, feel a little dated and slow, and that £1 million dream feels very distant. Chip's deposits are held by ClearBank, with FSCS deposit protection up to £120,000. For the full head-to-head, I wrote a separate Chip Prize Saver vs Premium Bonds comparison.
A quick reminder before the verdict. None of this is financial advice. This article contains affiliate or referral links, and if you sign up through them I may earn a commission or referral bonus at no extra cost to you. Capital at risk. The value of investments can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future results.
Ready to look at the investing side?
If you want a managed, hands-off route, JPMorgan Personal Investing keeps its current offer on our referral page. If you would rather pick your own shares and ETFs, Freetrade is the self-managed option I use day to day. Most people invest inside a stocks and shares ISA, and tax treatment depends on the individual circumstances of each client and may be subject to change in future.
JPMorgan managed offer Freetrade self-managed offer
Who it suits
Who Premium Bonds suit, and who should think about investing
There is no single winner here, only the right tool for each job.
To be fair, Premium Bonds suit some people really well. Maybe you value 100% security, want tax-free prizes, or simply enjoy the flutter of the draw. Premium Bonds also suit higher-rate taxpayers who have used up their personal savings allowance. Equally, they are handy for money you might need soon.
Meanwhile, investing tends to suit a different job. Perhaps you have money you will not touch for five years or more, and you want long-term growth. If you can also stomach the value falling along the way, investing usually fits better. Many people, me included, simply use both. For the wrapper itself, my best stocks and shares ISA guide covers your options.
So there is no single right answer. Your time horizon, your tax position and your appetite for risk all shape the call. In short, treat Premium Bonds vs investing as a both, and split your money by the job each part needs to do.
FAQs
Are Premium Bonds better than investing?
Honestly, neither is simply better. Premium Bonds keep your capital safe and pay tax-free prizes, whereas investing aims for higher long-term growth with real risk. In my experience, Premium Bonds vs investing is about matching each to a job, rather than crowning a winner.
What is the average Premium Bonds return?
The prize fund rate is 3.80% tax-free from the July 2026 draw. However, that figure is an average skewed by big winners. As a result, a typical holder with a smaller balance often earns less. Some months, you win nothing at all.
Are Premium Bonds safe?
Yes, very. Premium Bonds are 100% backed by HM Treasury, so your capital cannot fall in value. They are not FSCS-protected, but they genuinely do not need to be, because the government stands behind them.
Should I invest or buy Premium Bonds?
It depends on the money's job. For cash you might need soon, Premium Bonds or another easy-access account works well. For money you can leave for five years or more, investing has historically done better. However, it carries risk, and this is not advice.
Important. Rates, odds and terms can change, and they often do. Nothing here is financial advice or a recommendation, and your circumstances are unique, so do consider speaking to a qualified financial adviser before you act. Capital at risk. The value of investments can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future results. Tax treatment depends on the individual circumstances of each client and may be subject to change in future. This article contains affiliate or referral links, and I may earn a commission or referral bonus at no extra cost to you. CoolCuration is not authorised by the Financial Conduct Authority and does not give personalised financial guidance.
More from CoolCuration
- Best savings accounts UK – where I keep safe cash that I want earning a clear, stated rate.
- Overpay your mortgage or invest? – the other big safe-versus-growth decision, weighed up in plain English.
- JPMorgan Personal Investing explained – a factual look at how the ready-made investing service actually works.
- Chip app guide – how Chip handles automatic saving and its prize draw account.
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