Premium Bonds vs Cash ISA: Which One Actually Pays More in 2026?

Premium Bonds pay a 3.30% prize fund rate (rising to 3.80% from the July 2026 draw). Top easy-access Cash ISAs pay around 4.6% AER. Both are tax-free.

The prize fund rate is the average return across all bondholders. The median bondholder wins significantly less, because a handful of large prizes drag the mean upwards.

Premium Bonds are uniquely backed by HM Treasury through NS&I, so there is no £85,000 FSCS cap. They are useful sovereign-backed exposure above £85k.

A Cash ISA almost always beats Premium Bonds on expected return for balances under £20,000. Premium Bonds make sense for high earners who have already used their ISA allowance.

The way these products are marketed pushes the lowest-income savers towards the option that pays them less. That is a design problem, not a maths problem.