Premium Bonds can offer tax free but relatively unattractive returns.
Premium Bonds have been a part of the National Savings & Investments range of products ever since I can remember.
They offer tax free returns, your savings are guaranteed by the Government and you could win £1 million pounds.
As an alternative form of savings that makes them pretty attractive. However they are certainly not as attractive as they used to be. There were at one point two £1 million prizes given out every month, and the prize fund equivalent interest rate was much higher than the current 1.50%.
With the reduction in interest rates and the need for austerity the prize fund is not what it used to be. Many that hold premium bonds will have noticed the smaller cheques for £25 not coming through as much as they used to.
In short, Premium Bonds do not offer the return they used to, though this is tax free and the maximum investment is still £30,000. If you like the thought of possibly winning £1m then you may wish to keep them but a more consistent and reliable return than prize draw winnings can certainly be sought elsewhere.