ISA vs Premium Bonds in 2025: Where Should You Save?
Choosing between saving in an ISA or buying Premium Bonds can be tricky. Both offer tax-free returns in the UK, but they work very differently. This guide compares the two options to help you decide where to put your money in 2025. Take our quick ISA quiz to see which option fits your savings goals.
What Are Premium Bonds?
Premium Bonds are a savings product from NS&I (National Savings and Investments). Instead of earning interest, each £1 bond gives you a chance to win tax-free prizes in a monthly draw. The more bonds you hold, the higher your chances — but there's no guaranteed return.
Each month, NS&I runs a prize draw with awards ranging from £25 up to £1 million. While many savers enjoy the excitement of potentially winning big, it’s important to remember that you could go long periods without a single prize, meaning your effective return could be 0%.
What Is an ISA?
An ISA (Individual Savings Account) is a tax-free account that lets you earn interest or invest without paying tax on the returns. There are several types, including Cash ISAs and Stocks & Shares ISAs, each with different risk and return profiles.
You can save up to £20,000 across all your ISAs in the 2025/26 tax year, making them a key part of many savers’ strategies.
Key Differences Between ISAs and Premium Bonds
| Feature | ISA | Premium Bonds |
|---|---|---|
| Tax-Free Returns | Yes | Yes |
| Guaranteed Returns | Yes (Cash ISA) | No |
| Higher Return Potential | Yes (Stocks & Shares ISA) | Yes (via prizes) |
| Capital at Risk | Yes (Stocks & Shares ISA) | No (100% backed by UK government) |
| Withdrawals | Depends on provider | Anytime (few days to process) |
How Likely Are You to Win with Premium Bonds?
As of August 2025, the odds of winning any prize with a single £1 bond are 21,000 to 1. The annual prize fund rate is 3.6%, but your actual return could be far lower, even zero, unless you hold a large amount (around £10,000 or more).
For most savers, Premium Bonds will not match the predictable interest rates available from a good Cash ISA. However, the security of your money and the chance of a big win still appeal to many.
When Might an ISA Be Better?
- You want reliable, guaranteed interest from a Cash ISA
- You’re investing long-term and open to market risk via a Stocks & Shares ISA
- You expect to exceed your Personal Savings Allowance and want to protect interest from tax
- You prefer predictable growth over prize-based savings
When Might Premium Bonds Be Better?
- You want a 100% secure savings option backed by the UK government
- You like the excitement of possibly winning tax-free prizes
- You’ve already used your ISA allowance for the year
- You want quick access to your money without risking it
Can You Have Both?
Yes, you can hold Premium Bonds and save into ISAs at the same time. Premium Bonds do not count toward your annual ISA allowance, so they can be a useful extra savings vehicle once you’ve used your £20,000 ISA limit.
So, ISA or Premium Bonds?
If you're looking for long-term growth, a Stocks & Shares ISA or Lifetime ISA may offer better returns over time. If you want safe, tax-free savings with guaranteed interest, a Cash ISA is likely a better option than Premium Bonds.
However, if you enjoy the idea of winning, and can accept earning nothing most months, Premium Bonds are a fun, low-risk place to park your savings.
Explore More ISA Guides
- What Is an ISA? – A beginner-friendly overview of all types
- Stocks & Shares ISA – Higher risk, higher potential return
- Lifetime ISA – Save for your first home or retirement with a 25% bonus
- Innovative Finance ISA – Peer-to-peer lending with higher risk
- Junior ISA – Save for your child tax-free