NS&I cuts Premium Bond prize fund rate to 4%

National Savings & Investments (NS&I) is making another cut to the Premium Bond prize fund rate, reducing it to 4%.

The Premium Bond rate is currently 4.4%. Last month, NS&I said it would cut the rate to 4.15% in the December draw. Now, the rate will fall again to 4% from January.

The announcement will come as a blow to millions of savers.

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The odds of winning will remain the same at 22,000 to 1, and there will continue to be two £1 million jackpots. However, the number of other Premium Bond prizes will fall. For example, there are currently 89 £100,000 prizes up for grabs each month, but from January there will only be 82.

NS&I is also lowering the rates on its Direct Saver and Income Bonds from 20 December.

Andrew Westhead, NS&I retail director, comments: "We carefully review our savings rates in response to changes in the broader market. These adjustments help us meet our net financing target while balancing the interests of our savers, taxpayers and the wider financial services sector.”

Last year the government-backed savings organisation overshot its fundraising target, raising concerns that the Premium Bond prize fund rate would be cut again.

Savings rates have been drifting downwards over the past few months, after the Bank of England trimmed interest rates in August and November.

We look at NS&I’s changes in more detail, and ask: are Premium Bonds still worth it?

How will the Premium Bond prize draw change?

From the January 2025 draw, the prize fund rate for Premium Bonds will fall to 4%, down from 4.4% today and 4.15% in December.

The odds of winning will remain the same at 22,000 to 1. The January 2025 Premium Bond draw is expected to have more than £431 million in the prize fund with over 5.8 million prizes, ranging from two £1 million prizes to over 1.8 million £25 prizes.

The number of £25 prizes will actually increase, but the quantity of other prizes (bar the £1 million jackpot) will decrease.

For example, there will only be 166 £50,000 prizes (down from 177 currently), and 329 prizes worth £25,000 (down from 356).

What’s happening to NS&I’s Direct Saver and Income Bonds?

The interest rates on NS&I’s Direct Saver and Income Bonds will fall on 20 December.

The Direct Saver’s rate will be cut from 3.75% to 3.5%, while Income Bonds will have their rate chopped from 3.69% to 3.44%.

If you’re wondering how NS&I savings rates compare to the wider market, and the advantages of saving with NS&I, read How do NS&I savings account rates compare?

Are Premium Bonds still worth it?

A cut to the prize fund rate will make Premium Bonds less attractive. While you may be more likely to scoop a £25 prize, the odds of landing a bigger one ranging from £50 to £100,000 have shortened.

Whether you want to keep hold of your Premium Bonds depends on what sort of saver you are. If you have already used up your ISA allowance and face paying tax on the interest you earn, you may like Premium Bonds because the prizes are tax-free.

You may also enjoy the thrill of scooping cash prizes, and the possibility of a big win one day.

However, the reality is you may not win any prizes. The new 4% prize rate is not the same as a 4% interest rate. Some Premium Bond holders win nothing, while someone else could scoop a prize of, say, £25,000, which will give them an equivalent rate that’s far higher than 4%.

The investment platform AJ Bell recently revealed that 64% of Premium Bond holders have never won a prize.

“Savers with money in Premium Bonds should really think about whether the account is right for them,” comments Laura Suter, director of personal finance at AJ Bell.

“Considering many Premium Bond holders will never win a prize and the average expected return is lower than the top easy-access account, savers could well be better off with a guaranteed return elsewhere.”

The top-paying easy-access savings account currently pays 5%, while the top one-year savings bond pays 4.76%.