NS&I cuts premium bonds prize fund rate - what it means for you
After 18 months of rises, National Savings and Investments (NS&I) is cutting the 'prize fund rate' on premium bonds from the March draw.
The rate, which describes the average annual prize payout, will be reduced to 4.4% from 4.65%.
Here, Which? explains how the change affects the odds of winning and what it means for the number of premium bond prizes.
What's happening to the prize fund rate?
NS&I boosted the premium bond prize fund rate an impressive five times in 2023, hitting 4.65% in August - the highest its been since 1999. But what goes up must eventually come down and from March's draw, the rate will drop to 4.4%.
The lower rate means the total value of premium bonds prizes will fall from £475,510,350 to £444,399,400. The number of prizes will also go down from 5,843,447 to 5,771,425 – a decrease of more than 72,000.
The table below shows how the prize fund will change in March:
| Value of prizes | Number of prizes in January 2024 | Number of prizes in March 2024 |
|---|---|---|
| £1,000,000 | 2 | 2 |
| £100,000 | 91 | 85 |
| £50,000 | 182 | 170 |
| £25,000 | 365 | 339 |
| £10,000 | 912 | 848 |
| £5,000 | 1,821 | 1,697 |
| £1,000 | 19,020 | 17,775 |
Source: NS&I
What will the odds of winning be from now on?
Despite the rate cut, the chances of winning from March's draw and beyond remains the same at 21,000 to 1 – still the best odds since April 2008.
While there will still be only two jackpot winners, premium bond holders hoping to win another higher value prize will be disappointed to know that the number of prizes worth £100,000, £50,000, £25,000, £10,000 and £5,000 will go down by 232.
The total number of lower-value prizes worth between £50 and £1,000 will also drop by 355,224, but £25 prizes - the lowest you can win - will be boosted by 397,554.
If you're considering investing in premium bonds now in the hope that you can take advantage of the higher prize fund rate, you're out of luck - that's because premium bonds are only eligible for the draw once they've been held for one full calendar month and won't be entered until March when the new lower rate kicks in anyway.
- Find out more: should I get premium bonds?
Why has the prize fund rate fallen?
The 0.25 percentage point drop to 4.4% from March's draw isn't entirely unexpected. Which? reported in December that a cut to the prize fund rate was highly likely in the near future.
One possible reason why NS&I has decided to cut rates now is the Chancellor's announcement in the Autumn Statement to freeze the government-backed provider's fundraising targets at £7.5bn. Under the rules, NS&I can earn either £3bn more or £3bn less than its government target. The fact that it brought in £9.8bn in the last six months of last year means that the provider doesn't need any more cash.
To prevent more money from flowing in and going over the upper limit of £10.5bn, it makes sense to cut rates on its products. NS&I has already slashed rates on its three-year green bonds and axed its hugely successful 6.2% AER one-year bonds. As interest rates continue to drop across the savings market as a whole, we may see NS&I make further cuts.
Andrew Westhead, NS&I Retail Director, 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 that our rates are set at an appropriate position against those of our competitors as we work towards meeting our annual Net Financing target.'
- Find out more: premium bonds – are they worth it?
