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Prize draws vs Premium Bonds: where should your spare cash go?

Last updated · 5 min read

Short answer

They do different jobs, so the honest answer is that it depends what you want. Premium Bonds are a savings product: your money stays safe and you can take it back any time, but instead of interest you get monthly entries into a prize draw, and plenty of bonds win nothing for years. A prize competition is the opposite trade. You spend a small entry you will not get back, in exchange for a real shot at a large fixed cash prize on odds you can check up front. Both pay out tax-free in the UK, and neither is a way to guarantee a return.

What each one actually is

Premium Bonds are run by NS&I and backed by HM Treasury. You put money in, it stays yours, and each £1 bond gets a number that goes into a monthly draw for tax-free prizes. You can cash the bonds in whenever you like and get your full stake back.

A prize competition is not a savings product at all. You pay a small amount to enter, answer a skill question, and go into a draw for a single fixed cash prize. The entry is spent whether you win or not, the same as a ticket to anything else.

What happens to your money

With Premium Bonds your capital is protected. The risk is a quiet one: inflation chips away at money that earns nothing, and a run of blank months is common, especially with a small holding.

With a competition the maths is blunt. Most entries do not win, and the entry money is gone. What you are buying is the size of the swing: a sub-£1 ticket against a prize worth thousands, on a stated cap you can check before you pay.

The part that makes a competition checkable

The strongest thing a capped competition has over a prize-draw savings product is that you can see your odds. Your chance is your tickets divided by the total number that can be sold, and that total is published up front.

Premium Bond odds are set per bond and spread across a huge range of prize sizes, so the headline figure tells you little about a realistic outcome. A single fixed prize on a capped ticket count is a number you can actually work with.

What they have in common

Both are tax-free in the UK. A Premium Bond prize and a competition prize are each treated as a windfall, so nothing is deducted and there is nothing to declare for the prize itself.

And neither is income. If you need your money to grow reliably, a savings account or an investment is the honest answer, and we would rather say so than pretend a competition is something it is not. A competition is entertainment with a real cash prize attached, best played with money you are happy to spend.

Please note.General information to help compare two different things, not financial advice. It does not account for your circumstances, and the terms of savings products change over time. Check NS&I for current Premium Bond terms and speak to a regulated adviser about your own finances.

Common questions

Are Premium Bonds or prize competitions a better investment?

Neither is an investment. Premium Bonds are a capital-safe savings product with a prize draw instead of interest; a prize competition is paid entertainment with a shot at a fixed cash prize. If reliable growth is the goal, a savings or investment product is the right tool.

Are both tax-free?

Yes. In the UK, Premium Bond prizes and prize-competition winnings are both treated as windfalls, so neither is taxed as income and there is nothing to declare for the prize itself.

Do I get my money back if I do not win?

With Premium Bonds, yes: your stake is returnable in full whenever you cash in. With a competition, no: the entry is spent whether or not you win, just like any other ticket.

Related guides

Competition odds, explained honestlyHow to work out your real odds in a UK prize competition, why a capped ticket count matters, and the odds language that should make you suspicious.Do you pay tax on competition winnings in the UK?UK prize competition winnings are not taxed as income. Here is what that means in practice, what can still be taxed, and the one thing worth checking first.

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