Premium bonds vs property: What’s the best investment?

Putting money into premium bonds has been a popular way for people in the UK to save money for decades, especially for older people. However, are they still the best way to save and make your money go further?

As the UK property investment market continues to grow, should savers and investors leave premium bonds behind and embrace property? This ‘premium bonds vs property’ guide contains everything you need to know, including:

• What are premium bonds and how do they work?
• What returns can you expect from premium bonds?
• Are property investment returns higher than premium bonds in 2025?
• Premium bonds vs property: What’s the best investment?
• How to maximise your returns with UK buy-to-let property

‍

What are premium bonds and how do they work?

Premium bonds are one of the biggest savings products in the UK. They are backed by the government and also offer tax-free prizes via a lottery that runs every month. If you have premium bonds, you are entered into the lottery automatically and can win prizes ranging from £25 to £1 million. Those winnings are tax-free, no matter how much you receive, unlike interest from regular savings accounts.

Anyone over the age of 16 can buy premium bonds through NS&I, up to a total value of £50,000. You can also buy them on behalf of other people, and they have historically been a popular option for people who want to put money aside for children.

‍

What returns can you expect from premium bonds?

The government recently announced that 40% of British people aren’t saving enough for retirement. Combine that with a level of economic uncertainty, and, understandably, people would look at products considered safe bets, such as government-backed premium bonds.

However, the truth is that most people don’t earn any returns from premium bonds at all. If you don’t win a prize, you get no returns whatsoever. That’s a key difference between premium bonds and other types of savings and investments.

The premium bond ‘prize rate’ is being reduced to 3.6% in August. In theory, that means that for every £100 paid into bonds, an average of £3.60 will be paid out. However, in practice, that’s not quite how it works, as the minimum price is £25. That means for one person to win even the smallest prize, lots of people have to win nothing.

Money Saving Expert analysis shows that with average luck and the maximum £50,000 of allowable premium bonds, you are likely to win approximately £1,500 per year – a return of just over 3%. That’s not guaranteed, and it’s also very possible you will win nothing.

If you want guaranteed, reliable returns, premium bonds are a poor choice.

‍

Are property investment returns higher than premium bonds?

Property investments offer a much higher rate of return than premium bonds. Recent data from Paragon Bank shows that the average monthly rental yield in the UK has reached a 14-year high of 7.11%. In the North, average yields are even higher at 7.94%. Premium bonds are highly unlikely to ever return that amount unless you get extremely lucky.

Property investors also benefit from capital appreciation when they come to sell their property. House prices are going up across the UK, and forecasts from Savills show they will increase 23.4% on average by 2029.

‍

Premium bonds vs property: What’s the best investment?

Property investment offers two separate income streams that both outperform premium bonds in the vast majority of cases. For premium bonds to be a better investment than property, you need to be extremely lucky. For 99.9% of the time, you will either earn nothing or a far lower amount than you would with a property investment.

That makes property a superior investment option in all cases. If you are saving for retirement, want to generate a monthly income, want to build a nest egg to pass on to your children or anything else, property is a better investment than premium bonds. It is reliable, offers higher returns and is more predictable.

‍

How to maximise your returns with buy-to-let property

There are many different buy-to-let property strategies. Which one suits you will depend on your goals. For example, if you’re trying to build a portfolio to maximise rental income, you could try leveraging, or if you want to invest for long-term capital appreciation, then you could look at the areas of the country with the highest future growth, like Manchester and Liverpool. If you want absolute predictability combined with rental growth, you could invest in student accommodation.

The best way to start is to make sure you’re up to date with recent UK property market insights, then talk to an expert property consultant who can help you form a strategy that meets your financial goals.

‍For more information about getting started with property investments which offer higher returns than premium bonds, get in touch today.