NS&I Raised Premium Bonds to 4.35% in September. A Cash ISA Still Pays 4.61% — Guaranteed, Every Year.

The prize fund rate means total prizes paid out as a share of all eligible Bonds. It is not interest and it is not your return. NS&I's own product page states the odds plainly: 21,000 to 1 for every £1 Bond, every month, variable. You can hold anywhere from £25 up to £50,000.

At those odds, a full £50,000 holding enters 50,000 numbers into each monthly draw and wins around 2.4 prizes a month on average. Most of those prizes are £25, £50 or £100. The £1 million jackpots are what pull the average up to 4.35%; strip out the top prizes and the typical holder's experience sits well below the headline. A cash ISA does not have a distribution of outcomes. It has one outcome.

Six and a half million prizes were paid in the September draw. 6,446,807 of them — 98.7% — were worth £100 or less. The two £1 million jackpots and 95 £100,000 prizes that make 4.35% mathematically true are 0.0015% of all prizes. You are not buying a 4.35% return. You are buying a very long tail.

Run the same £20,000 through both products.

The best easy-access cash ISA pays 4.61%, and fixed-rate cash ISAs pay up to 4.87%. The £20,000 ISA allowance shelters every penny of that interest from tax, this year and every year you hold it.

A 4.61% cash ISA pays £922 a year on £20,000. A 4.87% fixed ISA pays £974. Premium Bonds at 4.35% produce £870 in expected return — and that expected figure is the mean, not what a typical holder receives.

The gap looks modest at £20,000. But 'expected' and 'guaranteed' are not the same column in a spreadsheet. The cash ISA pays £922 even if your bond numbers never come up — which, for a typical holder, is months of £0 punctuated by the occasional £25.

For the first £20,000, the cash ISA is the right home and there is no close second. The £20,000 maths settles that question every time it is run.

Right-skewed distributions have a brutal property: the average is pulled up by a handful of enormous outcomes while the middle sits below it. Premium Bonds are a textbook case.

In the September draw, NS&I paid £497 million across 6.5 million prizes. Two winners split £2 million. Ninety-five more took £100,000 each. At the other end, 1.7 million winners received £25.

That structure means the headline rate overstates what most holders experience. The 4.35% you see only materialises if you include the jackpot winners in your average — and you are not them.

A saver who needs to know what will be in their account in 12 months should not build a plan around an average that only exists across a population of millions. Certainty is the product a cash ISA sells. Premium Bonds sell hope.

The counter-argument deserves a fair hearing, because it is real for a specific group.

Premium Bonds prizes are free of Income Tax and Capital Gains Tax. For a higher-rate or additional-rate taxpayer who has already filled the £20,000 ISA allowance, a 4.35% tax-free expected return can beat a 4.5% taxable account once the Personal Savings Allowance — £500 for higher-rate payers, £0 for additional-rate — is exhausted. Your exact income tax band decides which side of the line you sit on.

That is a legitimate niche. It is also a narrow one. It requires a full ISA, a high marginal tax rate, a tolerance for variable outcomes, and enough cash that £50,000 in Bonds is not your emergency fund. If you tick all four boxes, hold some Bonds. If you do not — and most people do not — the cash ISA is the better home for the money.

The NS&I Premium Bonds guide works through the after-tax breakeven in full if you want the detail.

Ask one question before choosing: can I say, today, how much money I will have in 12 months?

With a fixed cash ISA at 4.87%, the answer is yes — £20,000 becomes £20,974 before you lift a finger. With an easy-access cash ISA at 4.61%, the answer is £20,922, give or take a rate change. With Premium Bonds, the answer is 'somewhere between £0 and £1 million, probably a few hundred.'

Certainty is not free, but in 2026 it is cheap. The gap between a 4.61% guaranteed ISA and a 4.35% lottery is only 0.26 percentage points — and the ISA pays it to everyone, every year, without asking you to be lucky.

Keep a small Premium Bonds holding if you enjoy the £1 million daydream, but do not mistake the draw for a savings strategy. The FSCS adds nothing here — NS&I is Treasury-backed either way — but it matters if your alternative is a high-street bank.

The headline rate is not the return you keep. CPI inflation ran at 2.9% in July 2026, so Premium Bonds' 4.35% expected return buys about 1.45% of real purchasing power before luck even enters. The cash ISA's 4.61% buys 1.71% — a bigger real return and a guaranteed one.

The Bank of England base rate sits at 3.75%, where it has been since December 2025. Premium Bonds' 4.35% is only 0.60 points above it, while the best easy-access accounts at 4.5% sit 0.75 points above. When rates eventually fall, the prize fund rate will follow — and so will guaranteed cash ISA rates, but the ISA's advantage of certainty does not shrink.

That is the quiet point of the whole comparison. You are not choosing between 4.35% and 4.61% today. You are choosing between a known number and a lottery ticket for the entire time you hold the money.