National Savings and Investments (NS&I) will cut its Premium Bond prize rates from 3.6 per cent to 3.3 per cent from the April prize draw, the government-backed bank has announced today.
It will also lengthen the odds of each £1 bond winning to 23,000 to 1 from 22,000 to 1.
In other words, the likelihood of any individual bond winning is getting lowered, while the effective rate it could win is also going down.
As a result of the latest changes, the number of £50,000 prizes is estimated to fall by 11, from 154 in the most recent draw to 143 in April. The number of savers who win a £5,000 prize is also expected to fall by an estimated 129 from 1,553.
Andrew Westhead, NS&I retail director, said: “This change to the Premium Bonds prize fund rate and odds reflects changes in the wider savings market, and ensures we continue to balance the interests of savers, taxpayers and the wider financial services sector.”
The Premium Bond prize rate is the return you will get if you have average luck, though there is never a guarantee you will win anything at all. Despite being the “most popular UK savings account”, according to NS&I, savers can earn better rates by opening an easy access savings account or cash ISA in most cases.
Premium Bonds may be worthwhile if you have a lot to save
While Premium Bonds rates are usually beaten, it can be worth sticking with them in some instances.
One of the main benefits to Premium Bonds is that the prizes are tax-free. Usually, basic-rate taxpayers can earn £1,000 in savings interest tax-free, whereas higher-rate taxpayers can earn £500.
The top easy access savings account currently offers 4.5 per cent interest, so a basic-rate taxpayer would need just over £22,222 in savings to exceed the savings allowance, whereas a higher-rate taxpayer would need just over £11,111.
Cash ISAs are still the best tax-free option for most people. However, if you’ve reached your £20,000 cash ISA limit, keeping your money in Premium Bonds could save you from having to pay tax on your earnings.
Better options: easy access savers and cash ISAs
With average luck, Premium Bonds don’t offer competitive rates. If you aren’t particularly attached to yours, it may be worth moving your money to an easy access savings account or cash ISA.
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Capital at risk.
Terms and conditions apply.
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Right now, new customers can open a Chase easy access savings account and get 4.5 per cent interest for the first 12 months, though you’ll need to open a Chase current account to qualify. There’s no obligation to use the current account.
Meanwhile, if you have yet to max out your cash ISA allowance, you can get the top rate of 4.4 per cent using our exclusive offer from Trading 212.
Elsewhere, you can get more than 7 per cent interest rates on smaller amounts if you open a regular saver account with the likes of Principality, Zopa or first direct.
When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.