Premium bond holders will have less chance of winning a prize from May 2017 onwards.
National Savings and Investments (NS&I) today announced a cut to the premium bond prize fund rate, from 1.25% to 1.15%, citing the Bank of England base rate reduction as a key reason.
The number of monthly £1m jackpot prizes awarded will remain at two, but there will be less chance of winning many other lucrative prizes, as you’ll see in the table below.
- The March issue of Which? Money magazine includes in-depth analysis of premium bonds, including whether you should hold them and your chances of winning a return that outstrips savings rates. Try Which? Money for two months for £1 to read the full investigation.
Premium bonds: are they still worth it?
Each premium bond is entered into a monthly prize draw and winners are selected at random by NS&I’s computer Ernie (Electronic Random Number Indicator Equipment). Tax-free cash prizes range from £25 up to a jackpot of £1 million. All NS&I products are 100% backed by the Treasury.
The current prize fund rate of 1.25% – which indicates the rate of return for someone with ‘average luck’ – will fall to 1.15% from May.
In comparison, the best rate on offer to all customers in the Which? Money Compare instant-access cash Isa tables is 1.01%. The best rate on offer to all customers in the Which? Money Compare instant-access savings account tables is 1.1%.
With premium bonds, there is a chance to win a life-changing sum of money, but it’s also possible you might never receive a prize and the real value of your savings could be eroded by inflation.
The table below shows how your odds of winning a prize could be affected in May.
Find out more: premium bonds – our guide explains everything you need to know
|Premium bond prizes|
|Value of prizes||February 2017||May 2017 (estimate)|
Cuts to NS&I variable-rate savings products
Customers with savings in an NS&I Direct ISA, Direct Saver or Income Bonds will also face rate cuts from 1 May 2017. These are detailed in the table below.
If you want to ditch these variable-rate NS&I accounts, use the Which? Money Compare savings and Isa tables to search hundreds of savings accounts and find a great savings rate based on quality of service as well as cost and benefits.
Which? Money Compare table: cash Isas and savings accounts – hundreds of deals compared
|Current rate||Rate on May 1 2017|
|Premium Bond prize fund rate||1.25% AER||1.15% AER|
|Direct Isa||1% AER||0.75% AER|
|Direct Saver||0.8% AER||0.7% AER|
|Income Bonds||1% AER||0.75% AER|
The only positive news is that NS&I will launch a market-leading three-year NS&I Investment Guaranteed Growth Bond in the spring.
Savers over 16 can open one bond each via the NS&I website, by post or over the telephone, investing between £100 and £3,000. The new bonds will be on sale for 12 months with an indicative interest rate of 2.20%, although the launch date and the precise savings rate is yet to be confirmed.
Alternatives to NS&I savings products
High interest current accounts offer better returns for savers, albeit on smaller balances. Nationwide FlexDirect pays 5% AER on balances up to £2,500 in the first year (falling to 1% AER after 12 months) and Santander 123 pays 1.5% AER on balances up to £20,000, although you must pay a monthly fee of £5.
If you’re willing to put in the effort, opening multiple high-interest current accounts is a smart way to boost your savings. However, if low savings rates are pushing you to consider taking some risk, you could put some of your money into a stocks and shares Isa, or try peer-to-peer lending.
- Learn more about how premium bonds work
- Get clued up on the new rules for cash Isas
- Your savings query answered by calling the Which? Money Helpline
Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.