NS&I recently changed the rules for the Premium Bonds scheme
Premium Bonds customers have been issued a warning about a savings rule(Image: Getty)
Premium Bonds holders are being urged to consider an important savings principle. The word of warning comes as NS&I makes key to the savings scheme.
From April’s draw onwards, the chances of each £1 winning a prize have worsened from 22,000 to one to 23,000 to one. The prize fund rate for Premium Bonds has also dropped from 3.6 per cent to 3.3 per cent.
The monthly draw offers substantial prizes for amounts such as £50,000 and £100,000, or even a £1million jackpot the majority of winnings are modest sums such as £25 or £50. Savers should also bear in mind that it’s common to go months or even years without any wins. During these dry spells, your funds could be generating interest or benefiting from investment returns.
Tim Grimsditch, managing director of money advice group Unbiased, warned that additional prize rate cuts may be coming up. He explained: “With the Bank of England signalling that interest rates may be eased further, it’s reasonable to expect downward pressure on Premium Bonds prize rates as well.
“NS&I typically adjusts rates in line with broader market conditions rather than moving first, but when base rates fall, savings products, including Premium Bonds, tend to follow. That doesn’t necessarily mean dramatic cuts, but we could see incremental reductions to both the prize fund rate and the odds of winning, particularly if cash savings rates continue to soften across the market.”
Locking in tax-free interest
One consideration for Bond holders is whether their money would be better placed in ISAs. When asked if this could be a superior option for your savings, Mr Grimsditch said: “Using your full ISA allowance before any future rule changes is an option, particularly if you’re sitting on large cash balances.
“Moving money from Premium Bonds into a cash ISA allows you to lock in tax-free interest at a known rate, rather than relying on chance-based returns.” The annual ISA contribution limit stands at £20,000.
These accounts offer complete tax-free benefits, with no HMRC liability on interest earned or investment gains held within an ISA wrapper. It’s worth considering maximising this year’s allowance as the rules are becoming stricter from next year.
From April 2027, only £12,000 of the allowance will be available for deposits into any type of ISA. The remaining £8,000 cannot be used for cash deposits and will exclusively be available for stocks and shares contributions.
You lose the opportunity
Those aged 65 and above will be exempt from these new regulations. Mr Grimsditch said: “Even if ISA allowances remain unchanged, once a tax year passes, you lose that opportunity permanently.
“For higher-rate taxpayers especially, sheltering cash within an ISA can be far more predictable and efficient than leaving large sums in Premium Bonds long-term.” The expert outlined who might want to consider withdrawing their Premium Bonds.
He said: “If you’re holding Bonds primarily for returns rather than the thrill of the draw, and you may be able to access a competitive guaranteed rate elsewhere, it’s reasonable to question whether they’re still working hard enough for you. That said, for those who value absolute capital security and flexibility, or who enjoy the chance aspect, Premium Bonds can still play a role within a diversified savings strategy.”
He urged savers to think about their broader financial objectives before making any decisions about their Premium Bonds. Mr Grimsditch said: “The key question is what role they serve; emergency fund, short-term parking, or long-term saving.
“As interest rates evolve, it’s worth reassessing whether your money is aligned with your goals and risk tolerance. A financial adviser can help weigh up certainty versus chance and ensure savings are structured in the most effective way.”