A savings rate usually invites a quick calculation: balance multiplied by rate. That shortcut becomes misleading with Premium Bonds. The UK product pays prizes instead of interest, so the annual prize-fund rate describes the money available across the draw, not a return promised to each saver.
Separate the fund from your own result
NS&I’s product information explains that eligible £1 Bond numbers enter a monthly draw. Your own outcome depends on which numbers are selected. It is possible to receive no prize during a period, even while the published fund rate is positive. A larger holding gives more entries; it does not turn prizes into a contractual interest payment.
Here is an illustrative calculation, not a forecast. Suppose someone keeps £2,000 eligible throughout a year and receives £50 in prizes. Their simple prize return for that unchanged balance is £50 ÷ £2,000, or 2.5%. Another person with the same balance could receive nothing. Neither result, by itself, tells us that the overall prize fund was calculated incorrectly.
Make a comparison that fits the money’s job
Write two columns before comparing products. In the first, put the features you can check: access arrangements, eligibility, the treatment of the original capital and any tax rules relevant to you. In the second, put the income you need and when you need it. An uncertain prize is difficult to assign to a bill with a fixed due date.
If your balance changes during the year, avoid dividing all prizes by the closing balance and calling that a clean annual comparison. Keep a dated record of purchases, withdrawals and prizes so the denominator remains meaningful.
The official rates page is the place to check current terms because the rate and odds can change. Treat a friend’s memorable win as their experience, not evidence of the result your own savings will produce. The useful question is whether uncertain prizes suit the purpose of this particular pot of money.