Both are tax-free, so the question is how you’d rather be paid: a cash ISA pays a stated rate of interest, while Premium Bonds pay nothing unless your bonds win a prize in NS&I’s monthly draw.
The comparison
| Cash ISA | Premium Bonds | |
|---|---|---|
| Return | Interest at a known rate: 2.01% (variable) or 4.40% (1-year fixed) on average in August 2026 | Prizes; the prize fund rate is 4.35% (variable), but what you win isn’t guaranteed |
| Tax | Tax-free | Prizes tax-free |
| Protection | FSCS up to £120,000 per person, per bank | 100% backed by HM Treasury |
| Limits | Shares your £20,000 ISA allowance | £25 to £50,000, separate from the ISA allowance |
| Access | Depends on the account | Can be cashed in |
What you’d actually win
The prize fund rate is the total paid out in prizes as a share of all the bonds in the draw. It’s an average across everyone, so what you win depends on luck: you can win more or less than the prize fund rate, or nothing. With odds of 21,000 to 1 for each £1 Bond each month, £1,000 of bonds would expect about 0.6 prizes a year on average, and could win nothing. A cash ISA’s interest is certain: at the average 1-year fixed cash ISA rate, £1,000 earns £44.00 in a year.
Prizes, prize values and the odds are all variable: NS&I can change them at any time.
Who each suits
- A cash ISA suits most savers: the return is known, and you can choose fixed or easy access. See cash ISA rates.
- Premium Bonds can suit people who have used their ISA allowance and want more tax-free savings, people with savings above the FSCS limit who want NS&I’s unlimited protection (where to put a large sum), and anyone who’s happy to trade a known return for the chance of a large prize.
You can have both: Premium Bonds don’t use any of your ISA allowance.
Related guides
- ISAs guide: the ISA types, the allowance and the main choices in one place
- Premium Bonds and NS&I: how the draw works
- Cash ISA rates: average rates now and what to check
- Personal Savings Allowance: tax on interest outside ISAs