NS&I to boost Premium Bonds prize fund rate and raises interest rates on four savings accounts

NS&I is boosting the prize fund rate on Premium Bonds, increasing the chances of winning a prize, and raising interest rates on four other savings accounts.

The government-backed savings bank will increase the prize fund rate from 3.3% to 3.8% and improve the odds of winning from 23,000 to one to 22,000 to one from the July draw.

NS&I said there will be an estimated 322,000 more prizes in the July draw, with the prize pot growing by £60 million.

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The number of £25 prizes is falling, but there will be 12 more £100,000 payouts, as well as 24 more £50,000 prizes up for grabs.

From today (14 May), NS&I is also raising the interest rates on four savings accounts: its Direct Saver, Income Bonds, Direct ISA and Junior ISA.

What will the changes to Premium Bonds and the savings accounts be?

There will be over 6.2 million Premium Bonds prizes up for grabs from the July draw worth more than £436.8 million.

Here is what the number and value of Premium Bonds prizes will be:

Credit: NS&I

Meanwhile, this is what the old and new interest rates are on the four savings accounts:

Credit: NS&I

Do the changes to Premium Bonds make them worth it?

Greig Bingham, head of financial modelling at financial services consultancy Broadstone, said NS&I was “clearly looking to make Premium Bonds more attractive again” after it reduced the prize fund rate in April in response to a base rate cut in December.

He said alongside the rise in the prize fund rate and increased odds of winning, one big positive was the shift in the make-up of the prizes.

The £25 prizes currently make up 47% of all prizes, but this will drop to 37% from July, while the number of higher-value prizes will rise.

“That means a greater share of the prize fund is being directed towards higher-value prizes, which could make the product feel more rewarding for savers fortunate enough to win,” Bingham said.

The other perk to Premium Bonds is that any winnings are tax-free, meaning they can be a useful addition to your wealth portfolio after you’ve maxed out your ISA allowance and personal savings allowance. Your savings are also 100% secure with NS&I.

However, the odds of winning a Premium Bonds prize are relatively low – around 62% of people who have Premium Bonds have never won a prize in the monthly draw, according to research by Vanguard.

You also don’t receive guaranteed interest on any Premium Bonds held, meaning, if you don’t win any prizes, your deposit erodes in value due to inflation.

Are the four savings accounts worth it after the increase in interest rates?

Rachel Springall, finance expert at data firm Moneyfactscompare, said: “Savers who prefer to keep their pots with NS&I will be delighted to see rates increase, but it is worth noting that the top rates on the market are over 4% on easy-access accounts, with some top fixed accounts paying well over 4.5%.”

NS&I’s Direct Saver, a taxable easy-access savings account, is now paying a 3.45% gross/AER interest rate on a minimum £1 deposit. Interest is paid yearly.

However, savers can get a 4.2% interest rate with Yorkshire Building Society’s Triple Access eSaver.

Savers can also get a 4.5% AER interest rate, including a boosted 2.25% AER rate for the first 12 months, with Chase’s easy-access savings account.

The Income Bonds, another easy-access savings account but with interest paid monthly instead of yearly, is now paying a 3.4% gross/3.45% AER interest rate on a minimum £500 deposit.

But, OakNorth Bank’s Easy Access Tracker pays 4.14% AER interest, with interest paid monthly, and you can open an account with just £1.

NS&I’s Direct ISA, an easy-access tax-free account, is now paying 3.8% AER interest on minimum deposits of £1.

However, Trading 212’s Cash ISA pays 4.51% AER, including a 0.91% bonus rate for the first 12 months.

The NS&I Junior (cash) ISA is paying 3.7% AER interest and is offering a competitive rate. As of 14 May, it’s in the top 10 for cash Junior ISAs on the Moneyfactscompare website.

However, you can get a higher 3.8% rate with Skipton Building Society’s Junior Cash ISA.

All of the above savings accounts are from providers that are FSCS-protected meaning your savings are protected up to the value of £120,000 per person, per authorised firm.