Having a flutter on the premium bonds is about to get less attractive following a decision to slash the total prize pot. Under the changes, the chances of winning some cash will stay the same, but there will now be a lot more £25 prizes on offer and fewer £100,000, £25,000, £10,000, £5,000 and £1,000 ones.
The announcement that the “prize fund rate” – the proportion of the total amount invested paid out in prizes – is being reduced from 1.25% to 1.15% deals a blow to Britain’s 21 million-strong army of premium bond holders.
In recent years, savers have ploughed billions of pounds into premium bonds, with many taking the view that as savings rates are so low, they might as well have some fun with their cash and hopefully win a few prizes.
However, National Savings & Investments (NS&I) said it was cutting the prize fund rate from 1 May after a decision was taken to cut the total value of the prize pot. This month’s pot is £69.5m, but May’s is estimated to be £63.8m.
While the “return” that holders enjoy is going down, the odds of winning a prize with each £1 bond number will remain unchanged, at 30,000-1. This is due to changes to the prize bands. There will be an estimated 95,000 more £25 prizes (the smallest payout) in May than there are this month, while most of the other prize bands are being cut. For example, the number of £100,000 prizes will fall from three this month to two in May, while the number of £10,000 payouts will be cut from 31 to 23.
However, there will be no change to the number of £1m and £50,000 prizes.
NS&I is also cutting rates on three other savings products from 1 May. The Direct Isa, held by 414,000 people, will see its rate reduced from 1% to 0.75%. Meanwhile, the 175,000 people holding income bonds will also have their rate cut from 1% to 0.75%. The new rate on the Direct Saver account, held by about 93,000 people, will be 0.7%, down from 0.8%.
There is some good news for savers: NS&I will be launching a market-leading three-year savings bond paying about 2.2% “in the spring” – no date has yet been announced, and the exact rate has not yet been confirmed. This bond was announced by the government in the last autumn statement and will be available at nsandi.com for 12 months.
Steve Owen, NS&I’s acting chief executive, said: “The new rates reflect current market conditions and allow us to continue to strike a balance between the needs of our savers, taxpayers and the stability of the broader financial services sector.
“We appreciate that savers will be disappointed, but we believe that the new rates present a fair offer to customers, who will continue to benefit from our 100% HM Treasury guarantee on all holdings, as well as tax-free prizes for premium bonds.”
