Premium Bond holders are eyeing the prospect of bigger tax-free payouts after the Government raised National Savings and Investments’ Net Financing target by £1 billion ($1.3 billion).
The Treasury’s decision to increase the mandate to £13 billion ($17.2 billion) for 2025 to 26 has intensified expectations that NS&I may need to keep or even improve the Premium Bonds prize fund rate to draw in significantly more customer deposits.
With the institution still more than £9 billion ($11.9 billion) short of its revised target, analysts suggest Premium Bonds could move further up NS&I’s agenda as a key fundraising tool.
NS&I’s Higher Funding Goal and What It Means for Savers
The Treasury confirmed earlier this week that NS&I must now secure £13 billion ($17.2 billion) by March 2026, up from the previous £12 billion ($15.8 billion) target. The Government also granted the institution a flexibility margin that allows it to gather as much as £17 billion ($22.5 billion) without exceeding its approved financial parameters.
Premium Bonds operate differently from typical savings accounts, as returns are determined by a monthly prize draw rather than interest accrual. The prize fund rate, which dictates the amount NS&I sets aside for prizes each year, currently stands at 3.6%. This followed a reduction from 3.8% in August and marks the third rate cut introduced in 2024.
The prize fund rate is influenced by changes in the Bank of England base rate, which is forecast to fall to 3.75% in December. The shift puts additional pressure on savings providers to adjust their offerings, although NS&I’s fundraising requirements complicate how and when further reductions may occur.
Analysts Point to Window of ‘Real Hope’ for Bondholders
Financial experts say the Government’s new target could influence NS&I to maintain its current prize fund rate, despite wider market conditions pushing savings rates downward. As cited by GBNews, Mark Hicks, head of Active Savings at Hargreaves Lansdown, said the prospect of a stable prize rate offers ‘real hope for bondholders’ at a time when banks are expected to lower returns on conventional savings accounts.
He noted that fierce competition in the savings market, combined with the recent reduction in the cash ISA limit, may keep ISA rates comparatively strong for a time. If NS&I’s products fall further down the best-buy tables, slower fundraising could encourage the organisation to prioritise Premium Bonds as a way to attract savers.
These dynamics follow the Bank of England’s recent decision to hold interest rates, which signalled a cautious economic outlook that has already prompted several rate adjustments across the savings sector.
What Bondholders Can Expect in the Coming Months
Premium Bonds remain a popular product due to their tax-free prizes and the chance to win up to £1 million ($1.3 million) each month. However, the odds stand at 22,000 to one for every £1 Bond (around $1.3) entered into the draw.
Research from AJ Bell recently found that nearly two-thirds of savers have never secured a prize, highlighting the unpredictability of the returns compared with traditional fixed-interest accounts.
Hicks said savers should continue to assess whether Premium Bonds suit their financial goals, noting that the average customer with average luck typically wins nothing in a given month. Even so, some savers consider the potential for a life-changing prize to be worth the uncertainty.
As NS&I works to close its funding gap, analysts say future adjustments to the prize fund rate will hinge on whether the need to attract new deposits outweighs market pressures driven by lower interest rates expected in 2026.