Are Premium Bonds haram?

Most scholars say yes, Premium Bonds should be avoided. The prizes come from a pool of interest on everyone's money, and they're handed out by random draw. That mixes riba with a lottery-style element. A minority of scholars allow them because you never lose your capital, but the cautious and more common view is to keep your savings elsewhere.

How Premium Bonds work

Premium Bonds are a UK government savings product from NS&I. You put money in and can take it out later; your capital is safe. Instead of paying each saver interest, NS&I calculates interest on the whole pot and puts it into a monthly prize fund. A random number generator then picks winners, from small prizes up to the jackpot. Most holders win little or nothing, a few win big.

Why most scholars avoid them

Two problems come together:

The prize money is interest. The fund is set as an interest rate on the money held. Calling it a "prize" doesn't change where it comes from. The Prophet ﷺ cursed the one who takes interest and the one who pays it (Sahih Muslim 1598).
It's distributed like a lottery. Whether you get anything depends purely on chance. Your "return" is the interest you'd have earned, pooled and redistributed by luck, which many scholars see as a form of maysir (gambling).

يَـٰٓأَيُّهَا ٱلَّذِينَ ءَامَنُوٓا۟ إِنَّمَا ٱلْخَمْرُ وَٱلْمَيْسِرُ وَٱلْأَنصَابُ وَٱلْأَزْلَـٰمُ رِجْسٌ مِّنْ عَمَلِ ٱلشَّيْطَـٰنِ فَٱجْتَنِبُوهُ لَعَلَّكُمْ تُفْلِحُونَ "O you who have believed, indeed, intoxicants, gambling, [sacrificing on] stone altars [to other than Allah], and divining arrows are but defilement from the work of Satan, so avoid it that you may be successful." Quran 5:90

The minority view

Some scholars argue that Premium Bonds aren't gambling, because you never risk losing your stake, and that a prize isn't a fixed, guaranteed interest payment. On this view, holding them is allowed, though some still advise giving prize money to charity. It's a real difference of opinion, but the doubt is strong. The Prophet ﷺ said, "Leave what makes you in doubt for what does not make you in doubt" (Jami' at-Tirmidhi 2518, sahih). The lottery itself is a much clearer case. See Can I still buy lottery tickets as a Muslim?

Halal alternatives for your savings

Islamic savings accounts: several UK banks offer accounts that pay an expected profit rate from Shariah-compliant activity instead of interest.
A plain current account: no return, but no problem either.
Halal investments: screened funds or property, if you're willing to take some risk.

Whatever you choose, cash savings above the nisab count for zakat. See Do I pay zakat on my savings account?

If you already have Premium Bonds

Don't worry about the past: you didn't know, or you were following a view you'd heard. Cash in the bonds when you're ready, keep your original capital, and give any prizes you've won to charity without expecting reward. See What do I do with interest money from my bank account?

Key points

Premium Bond prizes are funded by pooled interest and paid out by random draw.
Most scholars see this as riba plus a lottery element, so they avoid it.
A minority allow them because your capital is never at risk.
Your capital is yours to keep; give any winnings to charity.

Tip: If a relative gave you Premium Bonds as a child, thank them kindly for the thought and quietly move the money into a halal savings option.