I put £20k in premium bonds about a year ago, have won £25 about four times, a return of about 0.5%, so I'm not too impressed, although there is that tiny chance! I am thinking about transferring the money to the new release of National Savings Certificates instead.
Premium Bonds are rigged so that the average payout is pegged to the interest rate. Given that that's 0.5% at the moment, your likely winnings are going to be rubbish. £10k earning one £50 cash prize a year average. Cash ISAs might only be paying 3% or so, but at least you're guaranteed the income and they're usually pretty easy to cash in.
With Premium Bonds you might "win" more interest than you would earn on your ISA.
But you are far more likely to get nothing, in which case you have lost the amount that you would have gained in interest.
If you have £1000 of premium bonds for a year, there is a 61% chance that you will win nothing. If you won £25 you would still be earning less than a good ISA (good ISA should give 3%), so it is only if you won £50 or more that you would be up, and the chance of that is only 10.2%.
£1000 in an ISA would earn you £30 if the interest is 3% per year. The same £1000 in Premium Bonds will average £5/year based on the current bank rate. If you have a lot of spare cash and don't mind getting zero return on your money, a few Premium Bonds can be a bit of fun as part of a bigger portfolio. But, if you've only got £1000 and inflation is at 4%+, even 3% interest means you're losing money. Someone has to win the million but, as the old saying goes, 'a bird in the hand is worth two in the bush'
Not sure where you get these figures from, the current notional interest rate for premium bonds is 1.5% so the 'average' return on £1,000 for a year is £15 not £5 but of course the minimum prize is £25 and only 89% of the prize fund is given in smaller prizes so it is not as simple as that: in fact if 10 people each put in £1,000 for a year the most likely results are:
6 of them win nothing 3 of them win 1 £25 prize for a return of 2.5% 1 of them wins 2 £25 prizes for a return of 5%
.. so between them the overall return is £125 or 1.25%, and the remaining .25% return is accounted for by the small number of larger prizes
My mistake. But an overall return of 1.25%, assuming you don't win the jackpot, is still very poor when inflation is 4%+ You'd almost be better off keeping the money under the bed. As I said before... only OK if you can afford to risk next to no income from your money.
I like it when it pops through the door too, but having realised that it doesn't happen most months I am going to pull all or most of mine out soon. Why don't you just keep the ones you have already got and transfer your ISA to a better interest one (think the Halifax have the best one at the moment for transfers, you can check on moneysavingexpert.com).