Blow for Premium Bonds savers as NS&I makes rate announcement

A man checks his bills
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Premium Bonds provider NS&I has disappointed savers with news of a reduction in the prize fund rate for the monthly draw. The rate will drop from 4.4 percent to 4.15 percent. while the odds of each £1 Bond winning will also decrease from the current 21,000 to one, down to 22,000 to one.

Andrew Westhead, NS&I Retail Director, stated: "As the savings market continues to change, we need to lower the rates on some of our products to help us meet our Net Financing target, while also ensuring we continue to balance the interests of our savers, taxpayers and the broader financial services sector. Even with the changes, we’re still expecting to pay out over 5.7 million prizes worth over £435million in the December Premium Bonds draw."

Sarah Coles, head of personal finance at Hargreaves Lansdown, commented on the news saying: "The Premium Bond prize rate has finally been hit with the business end of the savings rate scythe, as NS&I has followed the rest of the easy access savings market by cutting the chances of a win. This was always going to happen eventually.

"NS&I has a duty not to overpay for the money it raises for the Treasury, which means the prize rate needs to be middle of the pack within the easy access savings market." Ms Coles also warned that the average saver with £1,000 in Bonds will "still win nothing" on average. .

Prizes vary from £25 to a £1million jackpot, but winning is not guaranteed, and it may take months or years to receive a payout. The finance expert stated: "The lengthening of the odds of a win should be food for thought for anyone who is holding money in these accounts and losing money after inflation."

"This could be the straw that breaks the camel’s back, and could be enough to persuade you to consider savings accounts instead." NS&I has also announced reductions to the interest rate on its Direct Saver and Income Bonds, dropping from 4% to 3.75% starting November 20.

Ms. Coles advises savers to explore alternative options with higher interest rates, as rates of 5% or more are still available. Additionally, NS&I is lowering the rate on its British Savings Bonds, with the Guaranteed Growth Bonds now at 4.1% (down from 4.25%) and the Guaranteed Income Bonds at 4.02% (down from 4.17%).

Ms. Coles cautioned: "They’ve only been on sale since August, and at this rate their days may be numbered. You can do far better elsewhere, with the best on the market offering 4.6 percent.

"And while the Treasury guarantee of your savings and the attraction of the brand will go a long way, for plenty of people it’s not going to makeup enough ground. These bonds look unlikely to shake or stir anyone."