What are premium bonds designed to provide for savers?

Premium bonds are specifically designed to offer savers a chance to win tax-free cash prizes rather than providing regular interest payments or a fixed rate of return. Instead of earning interest on the amount invested, holders of premium bonds enter a monthly prize draw where they have the opportunity to win various cash prizes, with the winnings being free from tax.

This system encourages saving in a way that is engaging and potentially lucrative, as it creates excitement around the possibility of winning, while also ensuring that the capital invested is secure and can be redeemed when desired. Therefore, the primary purpose of premium bonds is to provide the potential for tax-free cash prizes, which sets them apart from traditional savings accounts or fixed-income investments where interest or returns are guaranteed.