NS&I announces cut to Premium Bonds prize fund rate - slashing number of high value prizes from March

The odds of winning will remain the same at 21,000 to one, but the number of prizes available will reduce.

Andrew Westhead, NS&I Retail Director, said: “These changes reflect our requirement to strike a balance between the interests of our savers, taxpayers and the stability of the broader financial services sector.

"In a dynamic savings market, it’s important that our rates are set at an appropriate position against those of our competitors as we work towards meeting our annual Net Financing target.

“After these changes, the Premium Bonds draw in March is expected to pay out over 5.7 million tax-free prizes totalling more than £444million to savers across the UK.”

In March last year, the prize fund rate was 3.30 per cent and the odds were 24,000 to one. Savers have been benefitting from more competitive interest rates on savings accounts amid the Bank of England's base rate hikes.

Laura Suter, director of personal finance at AJ Bell, said today's cut was the "biggest sign yet" that the "rate bonanza enjoyed by savers is coming to an end".

She said: "The Government-backed provider has been increasing the prize fund on Premium Bonds consistently since 2022 as Base Rate rose and the saving war heated up."

The savings expert suggested the savings war had now "reached its peak", but explained NS&I had opted to "trim" the rate rather than slash it.

Ms Suter added: "NS&I will likely continue to bring rates down from here in small increments, as it gauges the popularity of Premium Bonds when savings rates are falling.

The 4.4 per cent expected prize fund on offer is still above where Premium Bond rates were in August last year, when they hit a 23-year high, and when this cut kicks in the rate will still remain significantly above the 3.3 per cent on offer in March last year."

Ms Suter said the "only direction from here is down" for savings rates from NS&I, pointing out the Government-backed savings provider had already exceeded its fundraising target for the tax year.

She added: “This is another signal for savers to shop around and nab the best rates before they fall further. We’ve already seen interest on fixed-rate accounts drop, with easy-access accounts now paying more than fixed-rate deals.

“Anyone weighing up whether Premium Bonds are worth it needs to consider that the expected prize fund will be significantly below the top easy-access rate, which is 5.22 per cent from Metro Bank. That means that even if you did get the average return from Premium Bonds you’d be leaving money on the table compared to a conventional savings account.

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"On £15,000 of savings that difference would equate to £120 a year in interest.

"On the maximum Premium Bond savings of £50,000 it’s a loss of £400 in interest a year. In reality though, few people win the average prize fund rate on Premium Bonds – many walk away with nothing.

“There are a few groups where Premium Bonds are a very attractive option, but for most the safety of a regular interest rate will be better.”

There were 5,843,447 prizes won in January 2024, worth 475,510,350.

After the prize fund rate cut, NS&I estimates there will be 5,771,425 prizes worth £444,399,400 in the March 2024 draw.

This includes an estimated 85 prizes worth £100,000, versus the 91 £100,000 payouts this month.