NS&I Raises Premium Bonds – But Is 3.80% Even Worth It?

NS&I has announced an increase to the Premium Bonds prize fund rate, taking it from 3.30% to 3.80% from the July 2026 draw. The odds are also improving, shortening from 23,000 to 1 to 22,000 to 1 for each £1 Bond held. For the more than 22 million people holding Premium Bonds, that means more prizes and a larger monthly pot — rising to an estimated £436.8 million in July, up from £376.2 million in May.

On paper, this is a meaningful upgrade. In practice, whether it actually makes Premium Bonds worth choosing over a straightforward savings account depends on what you want from your money.

What's actually changing

The prize fund rate is the figure NS&I uses to determine how much money goes into the monthly prize draw. It works a bit like an interest rate — but instead of everyone receiving a proportional return, the pot is distributed as prizes ranging from £25 to £1 million, drawn at random.

In July, NS&I estimates the draw will include:

• 12 additional £100,000 prizes

• 24 more £50,000 prizes

• An extra 49 prizes at £25,000

• Significantly more £100 and £50 prizes compared to May

The total number of prizes is expected to rise from around 5.9 million to 6.3 million in July.

NS&I is also raising rates across several other accounts with immediate effect:

These are variable rate products and interest rates could move again in either direction.

The problem with comparing 3.80% to a savings account rate

The 3.80% prize fund rate is frequently quoted as though it's equivalent to earning 3.80% interest. It isn't.

The prize fund rate determines the size of the pot, but your actual return depends entirely on luck. Statistically, over a large enough holding and a long enough time period, a Premium Bonds holder might expect returns that approximate the prize fund rate — but there are no guarantees. Plenty of holders go months without a single win, while others hit far more than their "expected" share.

For savers who need predictability — whether that's building an emergency fund, saving towards a goal, or just making sure their money is working consistently — that uncertainty matters.

A savings account paying a guaranteed rate gives you a known return from day one. You know exactly what you'll earn over the year, and you can compare it directly against the interest on your mortgage, the inflation rate, or any other benchmark.

How Premium Bonds compare to the best savings accounts right now

The best easy access savings accounts currently on the market pay guaranteed rates above what NS&I's own Direct Saver offers — and several sit at or above the 3.80% prize fund rate with no luck involved.

For savers who want the tax-free angle — one of Premium Bonds' genuine strengths — Cash ISAs are the more direct comparison. NS&I's own Direct ISA now pays 3.80% AER tax-free, but a number of Cash ISA providers currently offer higher rates, with the flexibility of easy access on top.

Fixed-rate bonds go further still if you're happy to lock money away. The top one and two-year bonds continue to pay well above NS&I's variable account rates, with the added benefit that your return is locked in regardless of what happens to the base rate.

When Premium Bonds do make sense

Premium Bonds aren't a bad product — they're just often misunderstood or used by savers who'd be better served elsewhere. There are situations where they genuinely stack up:

Higher-rate and additional-rate taxpayers. If you've used your Personal Savings Allowance (£500 for higher-rate taxpayers, £0 for additional-rate taxpayers), interest on savings accounts becomes taxable. Premium Bonds prizes are always tax-free. For higher earners with large deposits, this can tilt the maths.

Savers who've maxed their Cash ISA allowance. You can only put £20,000 into an ISA each tax year. If you're a prolific saver who's already used that allowance, Premium Bonds offer another tax-free option without a cap (up to £50,000 per person).

Those who value total capital security. Premium Bonds are backed 100% by HM Treasury — there's no FSCS limit to worry about. For savers holding more than £85,000, this is a practical consideration. Most savings accounts only protect up to £85,000 per authorised institution under FSCS.

People who genuinely enjoy the lottery element. There's nothing wrong with finding the monthly draw fun. If a small chance of winning £1 million appeals and you'd otherwise leave the money sitting in a low-rate current account, Premium Bonds are a clear upgrade.

The honest verdict

The rate rise is welcome, and it puts Premium Bonds in a more competitive position than they were at 3.30%. But the headline 3.80% figure flatters to deceive — it's a prize fund rate, not a savings rate, and the majority of holders will not see returns that match it consistently.

For most basic-rate taxpayers with straightforward savings goals, a guaranteed-rate easy access account or Cash ISA will deliver more reliable value. The best buys in both categories currently pay competitive rates without the randomness.

Premium Bonds are worth considering as part of a broader savings strategy — particularly once you've used your ISA allowance or if you're affected by savings tax. But as a first port of call for everyday savings? A savings account is almost certainly the sharper choice.