NS&I cuts Premium Bond prizes as savings rates fall
THE EFFECTIVE rate of interest paid on Premium Bonds is dropping as savings deals start to tumble.
National Savings and Investments (NS&I) is reducing the number of top Premium Bond prizes available each month, reducing the effective “prize rate” from 4.65pc to 4.4pc from March.
The number of £100,000 prizes will fall from 91 to 85, and the number of £50,000 winners will decrease from 182 to 170. The odds of winning will remain the same, with two bond holders winning the £1m each month.
It is the first reduction to the prize rate since 2020 following a string of increases.
The prize fund was increased to levels not seen since 1999 in August 2023, as a result of increases in the Bank Rate.
NS&I had been improving its savings deals to meet funding targets set by the Government. It launched a market-leading 6.2pc one-year fix last year, before it was pulled in early October.
Experts warned the prize rate could continue to fall, after the Chancellor froze the NS&I’S fundraising target at £7.5bn at last year’s Autumn Statement.
Some 22m savers hold Premium Bonds, making it the nation’s favourite savings deal. Other NS&I offerings have already been cut, with the rates on the three year “green” bond dropping from 5.7pc to 3.95pc in November.
Andrew Westhead, retail director at NS&I, 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 our rates are set at an appropriate position against those of our competitors as we work towards meeting our annual net financing target.”
The Treasury-backed savings scheme, which was launched in 1957, operates like a tax-free easy-access savings account.
Rates across other savings products have begun to tumble as speculation grows that the Bank Rate will be cut at least once this year.
The average one-year fixed rate yesterday was just 4.75pc, while easy access accounts were offering an average of 3.16pc.
Sarah Coles, of Hargreaves Lansdown said: “The coffers are full to bursting at NS&I. It doesn’t need to attract more cash, so it’s putting on the brakes, and Premium Bond holders are paying the price.”