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NS&I cuts premium bond prizes and savings rates

Is it time to move your money?

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)
£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

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

NS&I cuts
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.

More on this…

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