Premium Bonds (NS&I) offer tax-free interest via monthly prize draw. Average return is roughly 4-4.5% currently — equivalent to high-yield savings. Capital is guaranteed. Useful as part of emergency fund holdings but not for long-term savings.
Where they work
Emergency fund (up to £50,000 max holding). Bonus money waiting for investment. Cash buffer for higher-rate taxpayers above personal savings allowance.
Where they don't work
Long-term savings (no compounding — returns vary year-to-year). Children's savings (other tax-free options better). Retirement savings (pension or ISA always better).
Reasonable place for £10-30k of liquid savings. Don't load up beyond that — better returns available in stocks or higher-yield accounts.