NS&I has announced two major changes to Premium Bonds
Major changes to Premium Bonds are coming in(Image: Getty)
Premium Bonds holders may well be thinking through their options as NS&I slashes the odds of winning. Account holders have been urged to compare their chances of bagging a prize with the growth they could get with other savings options.
Customers may enjoy checking their numbers at the start of each month, when the prize draw takes place. Each £1 Bond has an equal chance of winning a prize in the monthly draw, rather than earning interest as with a traditional savings account. Bond holders stand a chance of winning a substantial prize, such as £100,000, £50,000 or even a £1million jackpot. However, the overwhelming majority of prizes are very small sums, such as £25 or £50. Plus the likelihood of winning at all is soon to fall.
Provider NS&I has confirmed that the scheme’s prize fund rate will fall from the present 3.6 per cent to 3.3 per cent, effective from the April 2026 draw. The probability of any £1 Bond securing a prize is also declining from the April draw, dropping from 22,000 to one to 23,000 to one.
This marks NS&I’s first prize rate reduction this year, though there were three cuts last year, as the the Bank of England also cut the base rate in recent months. Given the falling chance of winning a prize, this raises the question of whether Premium Bonds are the optimal choice for your savings.
Henrietta Grimston, chartered financial planner and partner at Saltus, said the scheme remains a good choice for some people. She explained: “Premium Bonds make sense for some savers because they remain one of the safest places to hold cash, with 100 percent capital security and tax-free outcomes, which will continue to appeal to people who prioritise certainty and flexibility over returns.”
As NS&I operates as a Government-backed savings provider, all your deposits are backed by the Treasury. Nevertheless, if you’re depositing funds in Bonds chiefly because it’s a secure repository for your money, you might want to compare your options.
You can hold up to £50,000 in Premium Bonds. By contrast, under FSCS regulations (Financial Services Compensation Scheme), your deposits receive protection up to £120,000 per individual per financial institution, representing a substantial £70,000 increase beyond the Premium Bonds holding limit.
Smaller chances of winning
Ms Grimston outlined the reality facing Bond holders, with the rate reduction approaching. She said: “The cut to the prize fund rate and longer odds further reduces the likelihood of achieving anything close to a competitive return, particularly for smaller holdings.
“As a result, Premium Bonds are best viewed as a low-risk cash holding rather than a true savings or investment product, and they should sit alongside other options rather than replace them.” If you transferred your funds into a savings account, you would get guaranteed returns on your money in line with the interest rate.
But with Premium Bonds you might go months or even years without claiming a prize. Also it’s worth considering that during your dry spell, the actual value of your Bonds investment falls in real terms due to inflation. Currently, the top-paying easy access savings accounts have rates of more than 4.5 per cent.
Depositing £50,000 in an account with a 4.5 per cent rate could generate £2,250 annually. Given that most Premium Bonds prizes amount to £25 or £50, you would need to get multiple wins or several larger prizes throughout the year to surpass this figure. The stark reality is that you might receive nothing at all.
Other ways to grow your savings
If you’re considering withdrawing your Bonds, Ms Grimston outlined several alternatives worth exploring. She explained: “The right alternative depends on how long the money can be left untouched.
“Short-term money may be better suited to cash ISAs or fixed-rate savings, while longer-term money may be more appropriately invested through ISAs, pensions or diversified investment solutions.”
Another think to bear in mind is the possibility NS&I could cut the rate again. Experts are forecasting that the Bank of England may reduce the base interest rate in the coming months, which could prompt Premium Bond rate cuts too.
Ms Grimston said: “If savings rates continue to soften across the wider market, further reductions are possible. Premium Bonds tend to follow broader interest rate trends, so any future changes are likely to be gradual rather than sudden.”
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