Premium Bonds prize fund to be slashed

THE premium bonds prize fund will be cut back in March in a setback for millions of savers.

National savings & Investments (Ns&I) said that rates will fall from the current level of 4.65pc, which is the highest since 1999, to 4.4pc.

The reduction follows 18 months of increases and comes amid signs that the Bank of england will start cutting official interest rates as soon as May.

Laura suter, director of personal finance at AJ Bell, said: ‘This is the biggest sign yet that the rates bonanza enjoyed by savers is coming to an end.’

Premium bonds are the UK’s most popular savings product, with 22m people holding them.

Ns&I, which is backed by the Government, has already soared past its £7.5bn fundraising target for the financial year.

It had raised £9.8bn by the half-year point, according to official figures that were released in November.

Inflows surged after it launched the tabletopping one-year guaranteed growth bond last summer, that paid 6.2pc to those who snapped it up.

But now Ns&I has decided to cut the rates to stem the tide as it comes dangerously close to hitting its £10.5bn upper fundraising limit.

Andrew Westhead, its retail director, said: ‘These changes reflect our requirement to strike a balance between the interests of our savers, taxpayers and the stability of the broader financial services sector. In a dynamic savings market, it’s important that our rates are set at an appropriate position against those of our competitors as we work towards meeting our annual net financing target.’

The cut means that around a total of £444.4m will be up for grabs for savers in the March prize draw, which is down from £475.5m in January.

Greig Bingham, of the actuarial consultancy OAC, said that winnings are likely to be smaller.

‘The odds of winning any prize will remain the same at 21,000-1,’ he explained.

He added: ‘A larger number of smaller prizes will drive a reduction in the prize fund rate with the average winner now more likely to win a smaller prize and therefore generate a lower return on their savings.’ There are still two jackpot £1m prizes available but the number of £100,000 prizes is estimated to be cut from 91 to 85.

And the number of £50,000 prizes to be won in the monthly draws is set to fall from 182 to 170.

The £25 prize, which is the lowest one up for grabs, is the only one that will increase in number.

From March, an estimated 1,435,338 £25 prizes will be available, which is an increase from 1,037,784.

The prize fund rate is now 0.82 percentage points lower than the market-leading easy access account.

savers paying into the instant access savings account from Metro Bank receive 5.22pc interest on their nest egg.