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Premium bond rate cut – have your odds of winning dropped?

NS&I has cut the rate on premium bonds from 1 May

The chances of winning a prize with premium bonds gets slimmer from Monday, as National Savings & Investments (NS&I) has sliced down the number of prizes on offer.

The ‘premium bond fund rate’ – the return someone with average luck might expect to get – is falling from 1.25% to 1.15% on 1 May.

And at the same time, NS&I is reducing rates on a number of its savings accounts and Isa, the latter of which is suffering a 0.25% rate cut.

Am I less likely to win a premium bond prize?

Premium bonds are not like an ordinary savings account – holders are entered into a competition to win prizes of between £25 and £1m.

Therefore, the interest rate doesn’t represent a guaranteed rate of return. Rather, the premium bond fund rate show a person’s likely winnings on their investment, assuming they have ‘average luck’.

While this likely return has gone down, the odds of winning a prize each month remain unchanged at around one in 30,000 each month, according to NS&I.

Cuts in premium bond prizes

The number of £1m prizes has also stayed the same, with two lucky winners claiming the life-changing sum. However, the overall number of prizes available each month will decrease.

In February, around 2,224,513 prizes were awarded. In May, this will reduce to 2,219,493, as you can see in our table below. The total value of prizes will also fall, from £70,880,100 before the changes to £63,810,400 after.

Large prize categories have shrunk, with two £100,00 prizes offered instead of three and nine £25,000 prizes instead of 11. But the lower value categories are hit hardest – around 50,221 less prizes will be offered in both the £50 and £100 bands.

Nonetheless, each band will take up the same portion of the prize pool. Higher value prizes (£5,000 plus) make up 5% of all possible winnings, while £500 plus prizes make up another 5%. Lower value prizes will continue to account for 90%.

Find out more: premium bonds – our guide explains everything you need to know

The number of premium bond prizes on offer from 1 May 2017
Value of prize Pre-May number of prizes Prizes from 1 May 2017
£1m 2 2
£100,000 3 2
£50,000 6 6
£25,000 11 9
£10,000 31 23
£5,000 58 47
£1,000 1,390 1,276
£500 4,170 3,828
£100 70,950 20,729
£50 70,950 20,729
£25 2,076,942 2,172,842
Total 2,224,513 2,219,493


What else is changing?

As well as reducing premium bond rates, NS&I has announced cuts to its variable rate savings products, which will also kick in on 1 May.

The rate on its Direct Isa will fall from 1% to 0.75%, though earnings on these accounts remain tax-free. The Direct Saver rate will drop from 0.8% to 0.7% and the Income Bond rate will decrease from 1% to 0.75%.

NS&I savings cuts
  Pre-May rates Rates from 1 May 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


Why is my rate going down?

NS&I has cited the Bank of England base rate reduction as the reason behind its own rate cuts. In August 2016, the Bank of England decreased the Bank Rate to 0.25%, its first cut in more than seven years.

According to NS&I acting chief executive Steve Owen, the new rates reflect current market conditions and ‘present a fair offer to the customer.’

Savings with NS&I continue to be fully guaranteed by Treasury and all prizes on premium bonds are tax-free.

If you are looking for a new home for your savings, you can find the accounts that beat inflation in our expert guide.

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