Savers have been dealt a blow as National Savings & Investments (NS&I) has announced it’s slashing the annual Premium Bond prize fund rate, while bond holders will have less chance of winning a prize.
The rate reduction from 1.5% to 1.3%, which will take effect from the beginning of August, reflects the average return expected, but individual bond holders may get more or less than this, depending on how frequently they win.
Lower chance of winning Premium Bond prizes
Instead of paying interest, Premium Bonds are entered into monthly prize draws to win prizes from £25 to £1 million. The maximum you can hold in Premium Bonds is £30,000.
As a result of the rate cut – the first rate change since October 2009 – the odds of each £1 bond number winning a prize will widen from 24,000 to 1 to 26,000 to 1.
NS&I cuts total Premium Bond prize fund
The total prize fund currently stands at £57.1 million, but this will fall to £49.3 million in August. The monthly prize fund is set by calculating one month’s interest on the total value of all eligible Premium Bonds, at the annual prize fund rate.
The top prize of £1 million will remain, but the number of other high-value prizes will dwindle. The number of £100,000 winners, for example, will fall from five this month to three from August, while the prizes worth £50,000 will drop from nine to six. The chances of winning £25,000 will almost halve as payouts will fall from 20 to 11.
It will become even harder to win smaller prizes, too, as the number of £100 and £50 payouts every month will fall dramatically from 33,552 to 11,891, while the number of £25 prizes will be cut from more than 1.83 million to more than 1.72 million.
Why has NS&I cut the Premium Bond prize fund rate?
NS&I products have become increasingly competitive in recent months as interest rates continue to fall elsewhere in the savings sector, and the prize fund rate has been reduced to reflect these market trends.
Jane Platt, chief executive of NS&I, said: ‘To ensure we stay within our Net Financing target – and in light of our framework to balance the needs of our savers, taxpayers and the stability of the broader financial services sector – we now need to reduce the Premium Bond prize fund rate.’