ISAs and Premium Bonds: How Each Works
This page describes how two products work, using only what NS&I and gov.uk publish. It does not compare, recommend, or rank them, and is not financial advice. Always check current product terms directly with the provider before deciding.
Premium Bonds are a National Savings and Investments (NS&I) product. NS&I says they do not earn interest and that an annual prize fund rate funds a monthly prize draw. gov.uk says you do not pay tax on interest on cash in an ISA. This page sets out how each works and where the published facts differ. It does not say which suits anyone.
The site's rules data was last checked against gov.uk on 26 September 2026. Figures typed in this guide may not yet reflect a later change, and the descriptions of gov.uk pages are summaries that may also lag. The current figures are on the ISA rules at a glance page. General information only, not financial advice.
The NS&I statements on this page (how the product works, the minimum purchase, the maximum holding, the tax and withdrawal wording, and the under-16 gift) were read on nsandi.com on 30 September 2026. NS&I can change them, so check the Premium Bonds page on nsandi.com for the current position.
How do Premium Bonds work?
NS&I says Premium Bonds do not earn interest. Instead, an annual prize fund rate funds a monthly prize draw, and NS&I describes the prizes as tax-free. The bonds are bought in amounts of at least £25 per investment, and NS&I says you can hold up to £50,000 in Premium Bonds. The pages read for this guide do not cover how the draw is run, so that detail is best taken from NS&I.
NS&I publishes the prize fund rate and the odds and describes them as variable, so this guide does not print them. The current rate and odds are on nsandi.com. The prize fund rate is a figure NS&I publishes about the draw. The pages read for this guide do not say how it relates to what any one holder receives. NS&I is the place to check that.
Under-16s: NS&I says you can buy Premium Bonds as a gift for a child under 16. The pages read do not set out who else may buy for a child, so that is a question for NS&I.
How does a cash ISA work?
An ISA (Individual Savings Account) is a way of saving where, according to gov.uk, you can save tax-free. In a cash ISA the money earns interest, and gov.uk says you do not pay tax on interest on cash in an ISA. You can read more on how ISAs work.
There is a yearly ISA allowance, which the site's rules data shows as £20,000 for 2026-27. The pages read for this guide do not set out interest rates or access terms, so the provider is the source for those. The site's guide to the different types of ISAs covers the other kinds.
How does each work, feature by feature?
The table uses the sources named in each cell. Where the pages read do not say, the cell says so.
| Feature | Premium Bonds (NS&I) | Cash ISA |
|---|---|---|
| What you receive | No interest. A prize fund rate funds a monthly prize draw (nsandi.com). | Interest on the cash in the account (gov.uk). The pages read do not give a rate; the provider states it. |
| Tax treatment | NS&I says: "All prizes are tax-free." The gov.uk savings-interest pages read do not mention Premium Bonds. | gov.uk says you do not pay tax on interest on cash in an ISA. |
| Limits | At least £25 per purchase; up to £50,000 held (NS&I figures, read on 30 September 2026). | The yearly ISA allowance, shown by the site's data as £20,000 for 2026-27. |
| Access to your money | NS&I says you can take out money online, by phone or by post with no notice or penalty, and that withdrawals can take 3-5 days to reach your bank account. | The pages read do not set out access terms, so check with the provider. |
| Is it an ISA? | The pages read do not describe Premium Bonds as an ISA, and gov.uk's ISA pages do not list them. | Yes, a cash ISA is one type of ISA. |
What tax treatment do the sources describe?
For a cash ISA, gov.uk says you do not pay tax on interest on cash in an ISA. For more on this, see the site's guide on whether ISA interest is taxable.
For Premium Bonds, the source is NS&I, which says "All prizes are tax-free." The gov.uk pages on tax-free savings interest that were read for this guide do not name Premium Bonds. One of them says: "You do not usually have to pay tax on interest earned from savings in accounts like Individual Savings Accounts (ISAs) and some National Savings and Investments." See gov.uk on tax-free interest on savings.
Those pages also describe the Personal Savings Allowance, under which, depending on your Income Tax band, some interest can be earned without tax. The pages read do not mention Premium Bonds or NS&I in that context, so they do not say whether prizes count towards it. This guide therefore states nothing either way. HMRC or NS&I can confirm how it applies to a particular situation. The Personal Savings Allowance page explains the allowance itself.
Do Premium Bonds use up the ISA allowance?
The pages read for this guide do not describe any link between Premium Bonds and the ISA allowance. NS&I's product page, as read, mentions ISAs in the names of other NS&I products, and gov.uk's ISA pages do not mention Premium Bonds. Because neither source states it, this guide does not say either way. NS&I can confirm how the two relate. The site's ISA rules at a glance page shows the allowance itself.
What can you ask NS&I or an ISA provider?
These are questions, not instructions, and the answers come from the provider or NS&I:
- What is the current prize fund rate and the odds, and when were they last changed?
- What does NS&I say about what a holder receives in a given month?
- Does a cash ISA have a fixed or variable rate, and can the provider change it?
- Are there notice periods or penalties for taking money out of a particular ISA?
- How would your own tax position affect the interest you are paid?
See also the site's frequently asked questions and its ISA rules at a glance page.
Frequently asked questions
Do Premium Bonds pay interest?
NS&I says Premium Bonds do not earn interest. It says an annual prize fund rate funds a monthly prize draw for tax-free prizes. The current rate and odds are on nsandi.com.
Are Premium Bonds an ISA?
The pages read for this guide do not describe them as an ISA, and gov.uk's ISA pages do not list them. gov.uk sets out the ISA rules.
Is interest in a cash ISA taxed?
gov.uk says you do not pay tax on interest on cash in an ISA. The yearly ISA allowance is shown on this site as £20,000 for 2026-27.
What is the most that can be held in Premium Bonds?
NS&I says you can hold up to £50,000, with each investment at least £25. These NS&I figures were read on nsandi.com on 30 September 2026, and NS&I can change them.
Can money be taken out of Premium Bonds?
NS&I says you can take out money online, by phone or by post with no notice or penalty, and that withdrawals can take 3-5 days to reach your bank account.
This guide does not constitute financial advice. Your personal situation, tax position, and savings goals may mean different strategies are appropriate. Consider speaking to a regulated financial adviser if you are uncertain.
