NS&I has announced a key change to Premium Bonds which will affect all savers. From the August draw, the prize fund rate will fall from the current 3.8 per cent down to 3.6 per cent.
The odds of each £1 Bond winning will stay the same at the current 22,000 to one.
With the drop in the prize fund rate, there will be fewer big cash prizes on offer, with NS&I predictions showing the number of £100,000 prizes decreasing from 79 in June to 75 in August. There will be eight fewer £50,000 prizes and more than 40 fewer £10,000 prizes.
But there will continue to be two £1 million jackpot prizes on offer, as with every monthly prize draw. Andrew Westhead, NS&I retail director, said: “This adjustment to the Premium Bonds prize fund rate – the first in four months – reflects the changing landscape for savings.”
The prize fund rate last dropped from the April draw, when it fell from four per cent down to 3.8 per cent. There were also cuts to the fund rate in January and in December last year.
Mr Westhead added: “Premium Bonds maintain their unique appeal by offering complete security backed by HM Treasury, the flexibility to withdraw easily, and the excitement of potentially winning a tax-free prize each month. The August draw is expected to deliver more than six million tax-free prizes worth over £396 million.
“By making this adjustment now, we’re able to continue to balance the interests of savers, taxpayers and the stability of the broader financial services sector.”
Finance experts have said it was always likely NS&I would cut the prize fund rate again. Sarah Coles, head of personal finance at Hargreaves Lansdown, explained: “The writing has been on the wall for Premium Bond prizes ever since the Bank of England cut interest rates in May.
“The most competitive easy access savings rates have held up impressively, but the market has been inching gradually south. At the start of April, the average easy access account paid 2.76 per cent and now it’s offering 2.68 per cent (Moneyfacts). NS&I pledges to be middle of the road, and as the road has moved into less rewarding territory, it was bound to make this cut.”
The Bank of England cut the base interest rate from 4.5 per cent down to 4.25 per cent in May. It opted to keep it at this level earlier this month.
Ms Coles warned further Premium Bonds rate cuts could be on the cards. She said: “At a time when the Bank of England is expected to make two more rate cuts before the end of the year, there’s a decent chance that savings rates will continue to gradually edge lower. The prize rate is likely to fall in step with it.”
She pointed to the stark fact that the average Bond holder will win nothing in the average month. Ms Coles said: “It means your savings are likely to lose money after inflation.
“It’s always worth taking stock when the rate falls, and considering whether you’re still happy with the deal, or whether you’d prefer the certainty of a strong rate in the wider savings market. Check what’s available from online banks and saving platforms, where you’ll usually find the strongest deals.”
