ISAs · October 2026
ISA vs Premium Bonds
Capital at risk. The value of investments can fall as well as rise, and you may get back less than you put in. Past performance is not a guide to future returns.
Important: This guide gives general information, not personal financial advice. Tax treatment depends on your circumstances and may change.
Last updated: .
Cash ISAs and Premium Bonds are both places to keep spare cash without stock-market risk, and both are tax-free. This guide compares how they work: returns, safety, access, limits and who can hold them, plus what changes for Cash ISAs from April 2027.
If you’re comparing Premium Bonds with an ordinary taxable savings account instead, our guide to Premium Bonds vs a savings account covers that.
Quick answer
- A Cash ISA pays interest at a known rate. Premium Bonds pay no interest and enter you into monthly prize draws instead.
- Both are free of UK Income Tax, so the main difference is a known rate against uncertain prizes.
- A Cash ISA uses your £20,000 ISA allowance for 2026/27. Premium Bonds have their own £50,000 limit and don’t use the allowance.
- From 6 April 2027, people under 65 can put up to £12,000 a year into Cash ISAs. Premium Bonds aren’t affected.
- Cash ISAs are FSCS-protected up to £120,000 per eligible person, per authorised firm from 1 December 2025 (source: FSCS). Premium Bonds are 100% backed by HM Treasury.
- You need to be 18 to open an adult ISA. You can buy Premium Bonds from 16.
Who this guide is for
It’s for anyone with cash to put aside who wants to keep it safe from stock-market falls and is choosing between a Cash ISA, Premium Bonds or both.
A Stocks and Shares ISA is different: it invests in things like funds and shares, so its value can fall as well as rise. Our Cash ISA vs Stocks and Shares ISA guide compares those two.
Quick comparison
| Feature | Cash ISA | Premium Bonds |
|---|---|---|
| How you earn | Interest at a stated rate. Variable or fixed, depending on the account. | Monthly prize draws, from £25 to £1 million. No interest. |
| Rate | Set by each provider. | Prize fund rate 4.35% a year, variable. Odds of 21,000 to 1 for each £1 Bond each month, variable. |
| Return certainty | You know the rate you’ll earn. | You might win more or less than the prize fund rate, or nothing. |
| Tax | Interest is tax-free and doesn’t need declaring. | Prizes are free of Income Tax and Capital Gains Tax. |
| Limits | Counts towards the £20,000 ISA allowance for 2026/27. | £25 minimum and £50,000 maximum per person. Separate from the ISA allowance. |
| From 6 April 2027 | Cash ISA limit of £12,000 a year for people under 65. | No change from the ISA rules. |
| Who can hold it | 18 or over. Under-18s can have a Junior ISA. | 16 or over. A parent or guardian can buy them for a child under 16. |
| Protection | FSCS up to £120,000 per person, per banking licence, shared with your other accounts there. | 100% backed by HM Treasury. |
| Access | Depends on the account. Easy-access, notice and fixed-term ISAs differ. | Cash in all or part at any time. New Bonds wait one full calendar month before entering the draw. |
Rate and odds as of 5 October 2026 (source: NS&I). ISA rules and limits from GOV.UK, checked 5 October 2026. Rates, odds and rules can change.
For dated Cash ISA rates, see our guides to easy-access ISAs and fixed-rate ISAs.
Tax-free vs tax-free: what really differs
Because both are tax-free, tax isn’t the deciding difference between them. The real comparison is a Cash ISA’s known interest rate against Premium Bonds’ uncertain prizes.
The prize fund rate is an average across all Bonds. With average luck, many holders win less than that rate, and some win nothing in a given month or year. A Cash ISA’s rate tells you what you’ll earn, though a variable rate can change.
NS&I notes that Premium Bonds may not suit you if you want a regular income or a known return (source: NS&I). Inflation can also reduce the real value of money in either.
When tax-free status matters at all
Outside an ISA, most people can earn some savings interest tax-free through the Personal Savings Allowance. It’s £1,000 a year for basic-rate taxpayers, £500 for higher-rate and £0 for additional-rate (source: GOV.UK).
If all your interest already fits inside your allowance, the tax-free status of a Cash ISA or Premium Bonds adds little for now. It matters more once your interest goes over it. Premium Bond prizes don’t count towards the allowance.
Our guide to ISA vs savings account covers Cash ISAs against taxable savings, and our Premium Bonds vs savings account guide covers the Premium Bonds side.
What changes in April 2027
These changes are legislated and come into force on 6 April 2027 (source: GOV.UK). They don’t apply in the 2026/27 tax year.
- Cash ISA limit. People under 65 can put up to £12,000 a year into Cash ISAs, within the £20,000 overall limit. People 65 or over keep a £20,000 Cash ISA limit, from the start of the tax year in which they turn 65.
- Transfers. People under 65 won’t be able to transfer from a Stocks and Shares ISA into a Cash ISA. Transfers the other way stay allowed.
- Cash in Stocks and Shares ISAs. A 22% charge applies to interest on cash held in a Stocks and Shares ISA, at any age. So keeping cash there won’t be a way around the £12,000 cap.
- Savings tax rates. From the 2027/28 tax year, tax on savings interest rises by 2 points: 22% basic rate, 42% higher rate and 47% additional rate.
Premium Bonds aren’t part of the ISA rules, so the £12,000 cap doesn’t affect them. Their own £50,000 limit still applies.
For people who pay tax on savings, higher tax rates make any tax-free return relatively more valuable. That applies to both Cash ISA interest and Premium Bond prizes. Our ISA allowance rules guide explains how the allowance works.
How safe each one is
Cash ISAs are bank or building society deposits. Eligible deposits are protected up to £120,000 per eligible person, per authorised firm from 1 December 2025 (source: FSCS). The limit is shared across all your accounts with the same bank or banking licence, including ISAs.
Premium Bonds are run by NS&I, which is backed by HM Treasury. NS&I says this secures 100% of the money you hold, including amounts over £120,000 (source: NS&I). This isn’t FSCS protection.
Our guide to FSCS protection limits explains how banking licences work.
Who can hold each one
You must be 18 or over and UK resident to open an adult ISA (source: GOV.UK). Under-18s can have a Junior ISA instead, and our Junior ISAs guide explains how they work.
You can buy Premium Bonds from 16 with a UK bank account. A parent or guardian can buy them for a child under 16 and manage them. Premium Bonds can’t be held jointly.
So 16- and 17-year-olds can hold Premium Bonds but can’t open an adult ISA. Our kids’ savings guide covers options for children.
Two illustrative examples
Jordan has £8,000 set aside as an emergency fund and might need it at short notice. Jordan prioritises a known rate and quick access, so an easy-access Cash ISA or savings account sits higher on the list than Premium Bonds. Our emergency fund guide covers where people keep that money.
Aisha already has an emergency fund and pays into a Cash ISA each tax year. She has another £5,000 she won’t need for several years and is comfortable with uneven prize months, so she considers putting part of it in Premium Bonds. If she’s under 65, from April 2027 she can put up to £12,000 a year into Cash ISAs.
Illustrative examples only. Your tax position, timescale and comfort with uncertain returns may differ.
Using both
Many people hold both. Since Premium Bonds don’t use the ISA allowance, holding them doesn’t reduce what you can put into ISAs.
What tends to matter is the job the money has to do. Money you might need soon, or for a fixed date, needs access and a known return.
Money you can leave alone can cope with uneven returns. Our compound interest calculator shows what a fixed rate could earn, and our budget planner can help you work out what’s genuinely spare.
The catch
The catch: Premium Bonds can go months without a prize, and both the prize fund rate and the odds can change at any time.
Cash ISAs have catches too. Variable rates can fall, fixed-rate ISAs may charge for early access, and FSCS protection is per banking licence, not per account.
Key takeaways
- Both are tax-free, so the main difference is a known interest rate against uncertain prizes.
- Premium Bonds don’t use your ISA allowance and have a separate £50,000 limit.
- From April 2027, the Cash ISA limit is £12,000 for people under 65, and savings tax rates rise by 2 points.
- Cash ISAs have FSCS protection. Premium Bonds have HM Treasury backing.
- Adult ISAs start at 18. Premium Bonds start at 16.
FAQ
Does buying Premium Bonds reduce my ISA allowance?
No. Premium Bonds are separate from ISAs. You can hold up to £50,000 in Bonds and still pay up to £20,000 into ISAs in the 2026/27 tax year.
Who stands behind my money in each one?
It depends on which one you hold. Cash ISAs are deposits covered by the FSCS up to £120,000 per eligible person, per authorised firm from 1 December 2025 (source: FSCS). Premium Bonds are backed 100% by HM Treasury through NS&I, which isn’t FSCS protection.
Can my Premium Bonds go down in value?
No, not in pounds. You can cash in the amount you put in. But you may win nothing, and inflation can reduce what your money is worth in real terms.
Does the £12,000 Cash ISA cap from 2027 affect me?
It depends on your age. From 6 April 2027, people under 65 can put up to £12,000 a year into Cash ISAs, within the £20,000 overall allowance. People 65 or over keep a £20,000 Cash ISA limit.
Are Premium Bond wins counted as savings income for tax?
No. Prizes are tax-free and don’t count towards your Personal Savings Allowance. Cash ISA interest doesn’t count towards it either.
Would Premium Bonds work for money saved towards a first home?
It depends on your timescale and how much certainty you need. Prizes aren’t predictable, so you might earn little or nothing before you buy. Our guide to Lifetime ISA vs Cash ISA for a first home covers the ISA options.
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