Are there doubts about whether savings should stay in a Cash ISA or be moved into NS&I Premium Bonds? This guide uses a clear Saver Confidence Score framework plus practical tools and scenarios to reach a decision that fits tax position, time horizon and risk appetite.
Key takeaways: what to know in 1 minute
- Saver Confidence Score summarises suitability: a numeric score based on horizon, required access, inflation outlook and appetite for chance-based returns. Scores near 0 favour keeping Cash ISAs; scores near 100 favour Premium Bonds.
- Cash ISA gives guaranteed, tax-free interest; Premium Bonds offer prize-based, tax-free returns with variable expected value.
- Expected value matters: Premium Bonds’ long-term expected return can be lower or higher than a Cash ISA depending on current prize rate and ISA rate. Estimate both before switching.
- Liquidity and timing are crucial: Cash ISAs usually allow instant access; Premium Bonds can be cashed quickly but prize payment timing affects effective access.
- Use the Saver Confidence Score and the included calculators to simulate outcomes under different interest, prize-rate and inflation scenarios before moving funds.
How the Saver Confidence Score guides the decision
The Saver Confidence Score (SCS) is a 0–100 index created to reduce emotional decisions when comparing Cash ISAs and Premium Bonds. It combines five weighted inputs: time horizon (30%), access needs (25%), real return requirement (20%), risk tolerance for prize variability (15%), and tax/legacy considerations (10%). Each input is given a sub-score; the weighted sum yields the SCS.
- Time horizon: short (0–2 years) scores low; medium (3–7 years) moderate; long (8+ years) scores higher because prize lotteries compound over time.
- Access needs: high need for immediate funds reduces score for Premium Bonds.
- Real return requirement: if beats inflation is essential, Cash ISA with known nominal interest may be preferred unless Premium Bonds' expected yield is clearly higher.
- Variability tolerance: if unpredictable yearly outcomes create anxiety, SCS should favour Cash ISAs.
- Tax position and estate planning: ISAs carry tax wrapper benefits and transfer rules that can alter the recommendation.
A practical interpretation: SCS below 30 suggests keeping funds in a Cash ISA; 30–60 suggests a split strategy (some in ISA, some in Premium Bonds); above 60 indicates moving a proportion of discretionary savings into Premium Bonds could be worthwhile. These thresholds are indicative and should be adjusted to personal circumstances.
Comparing Cash ISA interest with NS&I Premium Bonds
This section compares headline mechanics rather than every product variant. Cash ISAs pay a stated interest rate (variable or fixed) which is tax-free for the account holder. NS&I Premium Bonds do not pay periodic interest; instead each £1 bond is entered into a monthly prize draw with a published annual prize rate that reflects the expected return.
Key comparison points:
- Cash ISA: guaranteed interest credited periodically, protected by deposit guarantees (FSCS up to £85,000 where applicable), immediate visibility of earned interest.
- Premium Bonds: prize-based, capital preserved (face value returned on encashment), no FSCS backing since NS&I is backed by HM Treasury, monthly draws determine winners and prize payments are tax-free.
Relevant official sources: the NS&I Prize Fund Rate is published at NS&I, while ISA rules and allowances are clarified by HMRC at GOV.UK.
Expected returns: tax-free ISA versus prize-based winnings
Understanding expected return is central to the SCS. Expected return for Premium Bonds is the prize fund rate (annualised), multiplied by the chance-adjusted holding, but the distribution is skewed: many holders win nothing while a small proportion win larger prizes.
A simple comparison method:
- Use the current Cash ISA rate (annual percentage) and treat it as the guaranteed nominal return.
- Use the NS&I published prize fund rate as the expected nominal return for Premium Bonds.
- Convert both to real returns by subtracting an inflation assumption (use current Bank of England CPI forecasts or personal inflation assumption) to compare purchasing-power outcomes.
Example (indicative, current at time of writing): if Cash ISA pays 3.00% and NS&I prize fund rate is 2.90%, the expected nominal advantage is marginally in favour of the ISA. However, because Premium Bonds prizes are tax-free and can occasionally yield large windfalls, some savers prefer the chance element even if expected value is similar or slightly lower.
Assessing risk: capital preservation and prize odds
Both products preserve capital nominally. Differences arise in payment certainty and statistical distribution.
- Capital preservation: Cash ISA deposits are protected by the Financial Services Compensation Scheme (FSCS) up to the current limit where the provider is covered. NS&I is backed by HM Treasury and does not sit within FSCS but is effectively sovereign-backed.
- Prize odds and distribution: NS&I publishes the odds per £1 bond of winning any prize in a monthly draw. Odds vary with the prize fund rate; higher prize fund rate improves odds. Typical outcome: a majority of small savers will win nothing in a year, while a tiny fraction win larger prizes.
Risk summary:
- Cash ISA risk: interest-rate risk (real return may be negative if inflation exceeds rate) and counterparty risk limited by FSCS.
- Premium Bonds risk: variance of return; low probability of high payout; expected value equals prize fund rate but individual outcomes have high dispersion.
To convert “which is better” into “what to do”, the following practical calculators are recommended as part of the Saver Confidence framework:
- Expected value calculator: enter ISA rate, NS&I prize fund rate, amount and years to calculate nominal expected totals.
- Monte Carlo simulator: run repeated simulations of monthly Premium Bonds draws vs deterministic ISA interest to see distribution of outcomes and percentiles (median, 10th, 90th).
- Inflation-adjusted comparison: apply inflation scenarios (low, central, high) and compute real balance paths.
Built-in example (use these figures as illustrative; update with live rates):
- Principal: £10,000
- Cash ISA rate: 3.00% (annual, compounded)
- Premium Bonds prize fund rate: 2.90% (expected)
After five years nominal expected balances:
- Cash ISA: £10,000 * (1.03)^5 = ~£11,592
- Premium Bonds expected value: £10,000 * (1.029)^5 = ~£11,517
The expected difference is small (£75) but variance around the Premium Bonds outcome is large. A Monte Carlo run will show a wide spread for Premium Bonds: many runs below the ISA outcome and some well above because of occasional large prizes.
Liquidity and access: when you need savings quickly
Both products permit access but mechanics differ and affect effective liquidity.
- Cash ISA: most providers permit withdrawals either instantly or within days. For fixed-rate ISAs there may be penalties or loss of interest.
- Premium Bonds: encashment is processed by NS&I and funds are usually paid out within a few working days; however prize timing (monthly) and the fact prize payments may be processed slightly later can affect the timing of an unexpected windfall.
Practical tip: if immediate access under a day is essential for an emergency fund, keep that portion in an easy-access Cash ISA or instant-access account. Use Premium Bonds for discretionary savings where short delays (a few days) are acceptable.
Practical split strategies based on Saver Confidence Score
- SCS 0–29: keep emergency and short-term savings in Cash ISA. Consider only small speculative allocation to Premium Bonds.
- SCS 30–59: consider a split: emergency funds in Cash ISA (e.g., 3–6 months of essential expenses), remainder split between Cash ISA and Premium Bonds (e.g., 50/50) to balance guaranteed return and upside chance.
- SCS 60–100: larger allocation to Premium Bonds for discretionary savings; maintain an emergency Cash ISA buffer.
Each split should be modelled using the calculators above and adjusted to personal tax and inheritance concerns.
Common scenarios and worked examples
Scenario A — Short horizon, low appetite for variability: a homeowner saving for a deposit in 18 months (SCS ≈ 10). Recommendation: keep funds in a Cash ISA to preserve certainty of required sum.
Scenario B — Long horizon, enjoys prize chance: a saver with discretionary cash and no immediate access needs (SCS ≈ 75). Recommendation: move a portion into Premium Bonds while retaining an emergency ISA buffer.
Scenario C — Mixed goals: fund for holiday in 3 years and legacy savings (SCS ≈ 45). Recommendation: split; shorter-term portion in Cash ISA, longer-term discretionary in Premium Bonds.
Advantages, risks and errors to avoid
Benefits / when to apply
- ✅ Cash ISA: guaranteed, predictable tax-free interest and strong deposit protections. Best for emergency funds and short-term goals.
- ✅ Premium Bonds: chance of tax-free windfall, nominal capital preserved and backed by HM Treasury. Best for discretionary savings and those who value prize potential.
Risks / common mistakes
- ⚠️ Treating Premium Bonds as a guaranteed high-return product — expected value matters.
- ⚠️ Not modelling inflation: real returns may be negative for both products if inflation is high.
- ⚠️ Moving emergency savings into Premium Bonds for perceived upside without keeping a cash buffer.
Cash ISA vs Premium Bonds: at-a-glance
Cash ISA
- ✓Guaranteed interest (tax-free)
- ✓FSCS protection up to limit
- ⚠Real return may be negative if inflation high
Premium Bonds
- ✓Tax-free prizes, capital preserved
- ✓Backed by HM Treasury
- ✗High variance in outcomes; many win nothing
Direct comparative table: cash ISA vs premium bonds
| Feature |
Cash ISA |
Premium Bonds |
| Return profile |
Guaranteed interest (variable/fixed) |
Prize-based; expected value = prize fund rate |
| Tax treatment |
Tax-free within allowance |
Tax-free prizes |
| Liquidity |
Instant to a few days (provider-dependent) |
Encashment in days; prizes monthly |
| Protections |
FSCS up to limit |
Backed by HM Treasury |
| Best for |
Emergency funds, short-term goals |
Discretionary long-term savings and prize-seekers |
How to run the decision process step by step
Step 1: compute a baseline Saver Confidence Score
- Enter time horizon, access needs, return requirement, variability tolerance and tax/estate factors into the SCS formula.
- Use the numeric output to place the saver into one of the three recommendation zones (keep ISA / split / move more to Premium Bonds).
Step 2: model expected outcomes
- Run the expected value calculator and a simple Monte Carlo simulation comparing deterministic ISA returns against stochastic Premium Bonds draws across 1,000–10,000 iterations.
- Check median, 10th and 90th percentiles to understand downside and upside.
Step 3: decide allocation and re-check annually
- Convert SCS to an allocation plan (e.g., 30% Premium Bonds if SCS=60).
- Review annually or when prize fund rates or ISA rates change materially.
Frequently asked questions
What is a Saver Confidence Score and how is it calculated?
The Saver Confidence Score is a 0–100 numeric index combining five weighted inputs—time horizon, access needs, real-return requirement, variability tolerance and tax considerations—to recommend a relative allocation between Cash ISA and Premium Bonds.
Will I lose money if I move from a Cash ISA to Premium Bonds?
Capital is preserved nominally in both products. The risk is in purchasing power: if inflation exceeds expected returns, real value falls. Premium Bonds carry high variability in actual outcomes.
How quickly can Premium Bonds be cashed compared to a Cash ISA?
Premium Bonds encashments are typically processed within a few working days. Cash ISAs may provide instant access but fixed-rate ISAs can have penalties or notice periods.
Does the prize fund rate equal the average return on Premium Bonds?
Yes: the published prize fund rate is the approximate expected return averaged across all bondholders, although individual outcomes vary widely.
Should emergency savings ever be moved into Premium Bonds?
Generally not. Emergency funds require predictable, immediate access and stable nominal value; a Cash ISA or instant-access account is usually better.
Can Premium Bonds be included inside an ISA?
No. Premium Bonds are a separate NS&I product and cannot be held inside an ISA wrapper.
How often should the Saver Confidence Score be recalculated?
Recalculate annually or whenever personal circumstances or market rates (ISA rates, prize fund rate or inflation expectations) change materially.
Your next step:
- Use the Saver Confidence Score worksheet to calculate a preliminary score today.
- Run the expected value calculator with current ISA and NS&I rates and compare median outcomes.
- If the score suggests a split, move only the discretionary portion to Premium Bonds and retain an emergency Cash ISA buffer.
Sources: NS&I prize fund publications and GOV.UK ISA guidance; interest and prize fund figures described in examples are indicative and current at time of writing. For personalised advice consult a regulated financial adviser.