Millions of Premium Bond holders from January will see their prize fund rate reduced for the second time in two months.
Government-backed NS&I has announced that the Premium Bond prize rate will fall by 15 basis points from 4.15% to 4% from the January 2025 draw onwards. The prize fund rate changed from 4.49% to 4.15% in the December 2024 draw.
The prize fund rate is designed to show what an average person might win in prize money each year, presented as an example interest rate. However, there are no guarantees you’ll receive this amount, and you could win more than this – or you could win nothing at all.
The odds of winning a prize will remain at 22,000 to 1 in January 2025. Andrew Westhead, NS&I Retail Director, said: “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.
“Premium Bonds remain a popular choice for millions of savers, backed by the 100% government guarantee, with the January 2025 draw set to deliver over 5.8 million tax-free prizes worth more than £431 million.”
However, from January there will be a decrease in the number who will win all Premium Bond prize amounts. For example, the number of £1,000 prizes will fall from 17,426 to 17,277, and there will be 447 fewer £500 prizes, bringing the total number of £500 prizes to 51,831, down from 52,278.
Sarah Coles, head of personal finance at Hargreaves Lansdown said: “A hefty prize tends to persuade us to overestimate the chances of winning when we’re considering whether or not to take a punt. Usually this is offset by the cost of losing our stake, but because this doesn’t happen with Premium Bonds, it can feel like we’re not paying a price.
“However, the price you pay is just harder to spot – because you’re giving up the interest you could have earned elsewhere. If you put £1,000 away now and get an average of 3% on your savings over the next ten years, you’d make almost £350. If you left it in Premium Bonds and won nothing, you’d have missed out on all this potential interest.
“In order to decide whether Premium Bonds are the best option, you need to drag this cost to the forefront of your mind, and consider whether the near certainty of losing money after inflation is worth the chance you’ll be unusually lucky. If this persuades you to look elsewhere for reliable returns in a competitive easy access savings account, it’s worth considering online accounts and cash ISAs, and online cash savings platforms. These tend to offer much better rates than those available with high street banks, and the range of easy access deals available has grown dramatically over the years.”
Reductions have been announced to other NS&I accounts too. For example, rates on its Direct Saver account and Income Bonds will fall with effect from 20 December 2024, having already been reduced on 22 November. This is the second time that NS&I has reduced interest rates on these accounts since November 2020. The Direct Saver account from November will pay savers 3.50% gross, down from 3.75% currently, and Income Bonds will pay 3.44% gross, down from 3.69% gross.
You can read more about the pros and cons of all the various accounts NS&I offers in our article National Savings & Investments products explained.
Our article Five ways to boost your savings returns explores some of the ways you might be able to make your savings work harder for you.
You may also want to read our guide Investing – the basics to find out more about whether investing some of your savings over the long term could be right for you. Bear in mind that this is only likely to be a suitable option for you if you’ve already built up a separate easily accessible pot of cash savings which you can use for any unexpected expenses, and are comfortable accepting the risks involved.
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