Premium Bond Returns Fall Short as Investors Miss Out on Thousands
Premium bond holders are missing out on substantial returns compared to those investing in the UK stock market, with potential losses reaching thousands of pounds according to new analysis. The data suggests that Britons who favour the perceived safety of premium bonds over equity investments could be sacrificing significant earnings.
The Stark Comparison: Premium Bonds vs Stock Market Performance
Recent figures from investment platform Lightyear reveal a concerning gap in returns. An average premium bond holder with the typical balance of £6,000 would have earned just £908 in prize winnings between 2021 and 2025, assuming average returns and reinvestment of any prizes. This represents a modest return on their initial investment over the four-year period.
In sharp contrast, investing the same £6,000 amount into London's flagship market through a stocks and shares ISA during the identical timeframe would have grown the investment to over £10,600. This substantial difference leaves investors who chose the stock market route £3,788 better off than their premium bond-holding counterparts.
Market Recovery and Premium Bond Limitations
Despite investor wariness following the market volatility of 2022, which saw many seek overseas opportunities or retreat to cash holdings, the FTSE 100 has delivered robust performance in recent years. By December 2025, the index was trading near its all-time high, just below the 10,000 point threshold, having risen by more than a fifth over the course of the year alone.
The market achieved annual compound growth of 12 per cent over the past five years, with the index climbing above 10,000 points this month for the first time since 1984. Meanwhile, premium bonds have delivered an average rate return of just 12 per cent across the entire period, even after the prize fund peaked at 4.65 per cent in September 2023.
The Savings Landscape: Popularity Versus Performance
Despite offering low returns and no interest rates, premium bonds remain one of Britain's most popular savings products. More than 22 million holders collectively store over £134 billion in premium bonds, meaning approximately one in three Britons owns at least one bond.
The government's push toward investment awareness and the emergence of new digital investing platforms have begun to awaken Britons to the benefits of opening stocks and shares ISAs. However, the adoption gap remains pronounced, with only 4 million UK adults currently holding such investment accounts.
Among ISA products, the cash ISA maintains its position as the most popular choice, with roughly 10 million UK adults possessing one. This preference for cash-based savings vehicles over equity investments continues despite the potential for higher returns through stock market participation.
Expert Commentary on Investment Choices
Wander Rutgers, Lightyear's UK chief executive, offered perspective on the current savings landscape. "Now more than ever, Brits want their money to work harder for them," he observed. "While many see premium bonds as a responsible way to store their hard-earned cash, they're missing out on thousands by 'playing it safe'. Millions of Brits are effectively opting into a lottery rather than putting their money to work."
Rutgers emphasised the need for reconsideration of investment strategies, particularly for those with long-term financial objectives. "For people with long-term financial goals, that trade-off needs a serious rethink," he concluded, highlighting the opportunity cost of overly conservative savings approaches in the current economic climate.
