Are unexpected differences between guaranteed government bonuses and prize‑based savings leaving readers unsure where to put funds for a house deposit or short‑term goals? This guide explains, with clear examples, whether the legacy Help to Buy ISA (HTB ISA) or NS&I Premium Bonds typically suits each situation and how the HTB ISA bonus changes the math.
By reading the next sections, readers will find: a concise comparison, step‑by‑step guidance for claiming the Help to Buy bonus, numeric scenarios comparing expected returns vs prize odds, transfer and withdrawal rules, and a practical decision framework for short‑term saving.
Key takeaways: what to know in one minute
- Help to Buy ISA gives a guaranteed 25% government bonus on saved amounts (subject to rules); Premium Bonds offer prize draws with no guaranteed yield.
- For a defined house deposit goal, HTB ISA's guaranteed 25% bonus (up to a cap) usually beats the average expected return from Premium Bonds.
- For flexible, fully tax-free liquid savings with chance of a large tax-free prize, Premium Bonds are a suitable low‑risk complement.
- HTB ISA is a legacy product closed to new accounts; eligibility, transfer and closure rules are indicative at time of writing and must be checked when claiming the bonus. See gov.uk Help to Buy ISA and NS&I Premium Bonds for official guidance.
- Short horizons (6–24 months): HTB ISA favours committed first‑time buyers; Premium Bonds suit savers prioritising liquidity and prize upside.
How Help to Buy ISA (legacy) compares with Premium Bonds in practice
The comparison should start from the investor's objective. HTB ISA was designed to help first‑time buyers accumulate a deposit with a guaranteed top‑up. Premium Bonds are a savings product where capital is safe and interest is replaced by random monthly prize draws.
Key practical differences:
- Purpose: HTB ISA for first‑time buyer bonus; Premium Bonds for general savings with prize chance.
- Return profile: Fixed government bonus (HTB ISA) versus stochastic prizes (Premium Bonds).
- Accessibility: HTB ISA allowed withdrawals but bonus eligibility required conditions; Premium Bonds are immediately encashable without income tax on prizes.
- Eligibility and availability: HTB ISA is legacy (accounts opened before 30 Dec 2019); Premium Bonds remain open to new investors.
Numeric scenario: £5,000 saved before a house purchase
- HTB ISA: £5,000 saved → £1,250 government bonus (25%) → total £6,250 (ignoring any interest).
- Premium Bonds: £5,000 invested at current NS&I prize rate (indicative) — expected annual return based on prize fund rate (e.g. 1.0%–2.0% historically variable) → expected value ~ £50–£100 per year, but no guaranteed lump sum.
This simple scenario explains why HTB ISA typically outperforms Premium Bonds for a committed house purchase when the saver satisfies HTB conditions.
Cash ISA, Lifetime ISA and Premium Bonds explained briefly for context
- Cash ISA: standard tax‑free interest account for general savings. Interest is guaranteed but usually lower than a one‑off 25% bonus on qualifying HTB ISA withdrawals for house purchases.
- Lifetime ISA (LISA): available for new savers aged 18–39; government adds a 25% bonus up to annual limits when funds are used for a first home or after age 60. For those able to open a LISA, it often replaces HTB ISA benefits for future buyers. See LISA guidance.
- Premium Bonds: capital protection with tax‑free prizes; better where liquidity and prize potential outweigh need for a guaranteed bonus.
Note: this section exists only to position HTB ISA vs Premium Bonds; deeper LISA and Cash ISA comparisons are out of scope.
Help to Buy ISA legacy rules and government bonus (what matters now)
The HTB ISA closed to new accounts on 30 December 2019; existing accounts remain subject to legacy rules. Key points that determine whether the 25% bonus applies:
- The saver must be a first‑time buyer when buying a property.
- The property must meet price limits and be the main residence at purchase. Price caps applied historically (they varied by geography and over time). For properties in England the cap used to be up to £450,000 in many regions but local rules applied; confirm against archived guidance if buying.
- The bonus is 25% on eligible contributions, subject to a maximum government bonus of £3,000 per HTB ISA account (historical cap dependent).
- Timing and documentation: the solicitor or conveyancer claims the bonus from HMRC on completion; the HTB ISA provider issues a final statement. There are strict timelines for completing the purchase and submitting paperwork.
Practical steps for legacy account holders when purchasing:
- Notify the HTB ISA provider early and inform the conveyancer/solicitor that funds include HTB ISA savings.
- Retain statements showing eligible contributions and dates.
- Ensure the property price and buyer status meet the historical eligibility criteria.
For official archived rules consult gov.uk and seek solicitor confirmation during conveyancing.
Example calculation including modest interest
Assume cumulative saved contributions in HTB ISA = £8,000 and account interest = £200 at time of purchase.
- Government bonus applies to eligible contributions (£8,000) = £2,000 bonus (25%).
- If provider interest £200 is treated as part of the account, check whether the full balance qualifies; in many cases the bonus applies to total accrued eligible savings — the conveyancer will confirm.
- Final available = £8,000 + £200 + £2,000 = £10,200.
This shows the bonus magnitude relative to typical annual interest from other cash ISAs or expected Premium Bonds prizes.
Interest, prize draws and odds: ISAs versus NS&I explained
Compare guaranteed interest/bonus with prize probability and expected value.
- HTB ISA: guaranteed bonus (25%) at point of qualifying house purchase. There is no monthly prize randomness; the value is deterministic subject to eligibility.
- Cash ISA: guaranteed interest rate (variable) paid annually or monthly, tax‑free.
- Premium Bonds: no interest; instead each £1 bond number is entered into monthly draws. Expected return equals the published prize fund rate (varies). Prize distribution is highly skewed: many small prizes and a tiny probability of large prizes.
Current prize fund rate and odds (indicative at time of writing): check NS&I. The expected annual return can be lower than average cash ISA rates in certain markets, but winners receive tax‑free prizes and capital is secure.
Modelling expected value
Expected annual return for Premium Bonds = prize fund rate × investment. Example: for a £10,000 holding and a prize fund rate of 1.5% the expected return is £150/year on average, but variance is high and returns are not guaranteed.
In contrast, HTB ISA's guaranteed 25% bonus on eligible saved amounts can far exceed expected annual returns if the saver is approaching a specific milestone (house purchase).
Transfers and withdrawals: Help to Buy versus Premium Bonds (practical rules)
- Help to Buy ISA: providers allowed transfers between HTB ISAs and to certain other ISAs; withdrawals were permitted but withdrawals that remove eligibility for the government bonus should be avoided unless planned. When withdrawing to buy a house, the solicitor must confirm eligibility to trigger the bonus claim.
- Premium Bonds: fully withdrawable by cashing bonds at NS&I; no bonus conditions apply and prizes remain tax‑free.
Transfer scenarios:
- Moving HTB ISA to a Cash ISA or LISA: historically there were specific transfer rules and potential impact on bonus rights. For legacy accounts, transferring out before purchase can jeopardise the bonus—consult the provider and conveyancer.
- Transferring Premium Bonds to another product: cashing bonds and moving proceeds is straightforward; no transfer mechanism to ISAs preserves the bond tax‑status — proceeds must be re‑invested appropriately.
Which suits short-term goals: Help to Buy or Premium Bonds?
Short‑term means roughly under 24 months. Decision factors:
- If the short‑term goal is a first home purchase and the HTB ISA holder meets legacy eligibility, Help to Buy ISA usually wins due to the 25% bonus.
- If the goal is flexible emergency savings or desire for prize upside, Premium Bonds are preferable. They offer capital security and immediate access without bonus‑eligibility constraints.
- If the timing of the house purchase is uncertain, Premium Bonds may mitigate the risk of missing HTB ISA bonus conditions (for example if purchase is delayed beyond the allowed claim period).
Simple rule: use HTB ISA if the bonus is reliably claimable for the specific purchase; otherwise choose Premium Bonds for flexibility.
Table: direct comparison of Help to Buy ISA (legacy) and Premium Bonds
| Feature |
Help to Buy ISA (legacy) |
Premium Bonds (NS&I) |
| Primary purpose |
Government bonus for first‑time house purchase |
Tax‑free prize draws; general savings |
| Return |
Guaranteed 25% bonus on eligible savings |
Random prizes; expected return = prize fund rate |
| Liquidity |
Withdrawals allowed but bonus rules affect eligibility |
Immediate cash‑out from NS&I |
| Tax |
Bonus and interest tax‑free within ISA wrapper |
Prizes tax‑free; capital secure |
Note: table rows alternate background for readability. Data indicative at time of writing; refer to providers for up‑to‑date rates and rules.
Help to Buy ISA (legacy) vs Premium Bonds at a glance
Help to Buy ISA (legacy)
- ✓25% guaranteed bonus
- ⚠Bonus only for qualifying purchase
- �Legacy accounts only
Premium Bonds
- ✓Capital secure and tax‑free prizes
- ✗No guaranteed lump sum
- ⚡Immediate cash‑out
Analysis and strategy: advantages, risks and common mistakes
Benefits / when to use
- ✅ Use HTB ISA for a confirmed first‑time home purchase where legacy rules are satisfied—the 25% bonus is large and deterministic.
- ✅ Use Premium Bonds for emergency funds or when flexibility matters, keeping capital intact and prize chances open.
- ✅ Combine both: keep a planned house deposit in an HTB ISA while parking discretionary savings in Premium Bonds to preserve optionality.
Errors to avoid / risks
- ⚠️ Miscounting the bonus: failing to confirm eligible contribution dates can reduce or forfeit the bonus.
- ⚠️ Using HTB funds for non‑qualifying purchases: that will not trigger the bonus and may be worse than other options.
- ⚠️ Expecting Premium Bonds to consistently outperform guaranteed bonuses; they are probabilistic and may underperform for specific short horizons.
Step‑by‑step: how to claim the Help to Buy ISA bonus when buying (practical checklist)
- Confirm first‑time buyer status with solicitor.
- Inform HTB ISA provider early and provide purchase details to the conveyancer.
- Provide statements showing eligible contributions and dates on request.
- Conveyancer submits the bonus claim to HMRC on completion; confirm the timing and expected receipt.
- Check final HTB ISA provider statement to reconcile bonus payment and proceed with completion.
For archived official steps consult gov.uk and ensure the solicitor confirms compliance with legacy rules.
FAQ: frequently asked questions
Can a Help to Buy ISA saver use Premium Bonds instead?
Yes. Switching is possible but moving funds out of an HTB ISA before a qualifying purchase can affect bonus eligibility. Check provider rules and timing with a conveyancer.
Are Premium Bonds better if a house purchase is uncertain?
Often yes. Premium Bonds give liquidity and prize upside without risking bonus eligibility issues linked to HTB ISA conditions.
How long does it take to receive the Help to Buy bonus after completion?
Typically the bonus is claimed after completion by the solicitor and paid within a few weeks, but processing times vary; confirm with the conveyancer and HTB ISA provider.
Can interest in a Help to Buy ISA affect the bonus calculation?
Interest treatment depends on provider rules and claim guidance; include provider statements and let the conveyancer verify eligible balance when submitting the claim.
Are Premium Bonds taxable?
No. Prizes are tax‑free and capital is secure. There is no tax on winnings for UK residents.
Is the Help to Buy ISA bonus subject to tax?
No. The HTB ISA bonus is paid tax‑free as part of the ISA regime.
Can an HTB ISA be transferred into a Lifetime ISA?
Historical transfers had specific rules; transferring could affect bonus rights. For current LISA rules see gov.uk and consult the HTB ISA provider.
Conclusion
Next steps
- Review actual HTB ISA statements and confirm legacy eligibility with the chosen conveyancer or solicitor.
- If the purchase is definite and eligibility is confirmed, prioritise HTB ISA funds for the deposit to capture the 25% bonus.
- If timing or eligibility is uncertain, park discretionary savings in Premium Bonds for liquidity and prize potential while preserving HTB ISA contributions for the purchase.
This guide focused strictly on Help to Buy ISA (legacy) vs Premium Bonds to enable a practical decision for short‑ to medium‑term savings goals. For personal advice, consult a regulated financial adviser or the solicitor handling the purchase.