NS&I has announced it will be reducing the Premium Bonds prize fund rate from the March 2024 draw.
The prize fund rate will drop from 4.65 percent to 4.4 percent, but the odds of any £1 Bond number winning a prize will remain the same at 21,000 to one.
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.”
The change compares to the March 2023 draw when the prize fund rate was 3.3 percent and the odds were 24,000 to one.
Laura Suter, director of personal finance at AJ Bell, said the cut was the “biggest sign yet that the rate bonanza enjoyed by savers is coming to an end”.
Ms Suter 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. But that has reached its peak.
“[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.”
However, Ms Suter noted: “The 4.4 percent 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 percent on offer in March last year.”
Premium Bonds were launched in 1956 as a unique way to save. Instead of earning interest, each £1 Bond is entered into a monthly prize draw with the chance to win tax-free prizes ranging from £25 to two £1million jackpots.
The changes announced today will mean that an estimated 85 prizes of £100,000 will be up for grabs in March, down from 91 in January.
There will be around 170 £50,000 prizes in March, down from 182 in January. The number of £25,000 prizes is expected to decrease from 365 to 339 between January and March.
The estimated number of £1 million prizes will remain the same, at two. However, there will be more £25 prizes available, with the number increasing from 1,037,784 in January to around 1,425,338 in March.
NS&I is backed by the Treasury and the savings giant is set targets for the net amounts of financing it should raise. It has a duty to balance the interests of savers, taxpayers and the wider financial services sector.
Figures released by NS&I last year showed it delivered £7.7billion of net financing in the second quarter of 2023/24, taking its half-year total to £9.8billion.
Its net financing target for 2023/24, set at the Spring Budget 2023, is £7.5billion, with room for manoeuvre of plus or minus £3billion.
Sarah Coles, head of personal finance, Hargreaves Lansdown, said: “The coffers are full to bursting at NS&I. It doesn’t need to attract more cash, so it’s applying the brakes, and Premium Bond holders are paying the price. If this doesn’t halt the flow of cash, there may well be more cuts on the cards.”
Ms Coles added: “Premium Bonds are its biggest product, so it’s likely to hope that, by tinkering with the prize fund, it will avoid spending too much money on attracting more cash than it really wants. The risk is that if the money keeps coming, NS&I may well cut the rate again.”
