- Premium Bond prize rate cut for the first time after last year’s increases
- The bonds now pay significantly less than best-buy easy-access accounts
National Savings & Investments (NS&I) will cut the interest rate paid on Premium Bonds for the first time after a series of increases throughout 2023.
The bonds’ prize fund rate, which is not guaranteed but represents the average return for savers who win prizes, will be reduced from 4.65 per cent to 4.40 per cent from March.
Last year, Premium Bonds topped the charts for the highest-paying savings accounts. But the best easy-access account, offered by Paragon Bank, now pays 5.05 per cent, according to research firm Moneyfacts. The March cut will make Premium Bonds less attractive to savers, although standard savings account rates have also slightly come down from last year’s peak.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said NS&I no longer needs to attract more cash and so is “applying the brakes”. “If this doesn’t halt the flow of cash, there may well be more cuts on the cards,” she added.
The odds of winning a prize will remain the same at 21,000 to 1, but the number of prizes worth between £50 and £100,000 will be reduced in favour of those worth £25.
“If you are considering putting money into Premium Bonds… you also need to consider the fact that in the average month, the average bond will win nothing, so Premium Bonds will be losing money after inflation,” Coles said.
While most people are better off with an account that pays a guaranteed rate, NS&I prizes are tax-free, which can be attractive for higher and additional rate taxpayers or for those who have exhausted both their personal savings allowance and their Isa allowance. Higher rates from banks have meant savers are breaching the personal savings allowance with a smaller pot of cash than they used to.
Premium Bonds savings are also backed by the state and therefore are fully protected so savers need not worry about the £85,000 limit for the Financial Services Compensation Scheme. However, savers are limited to only £50,000 of Premium Bonds.
In October, NS&I also had to pull its ‘best buy’ one-year bonds from the market after high demand.
