Savers of Premium Bonds suffer as NSandI declares interest rate adjustments

Today, NS&I revealed modifications to several of its savings products, including Premium Bonds

We describe the implications for savers.

To hurt savers hoping to win big in the monthly prize draws, NS&I is reducing the prize fund rate of its well-liked Premium Bonds from 4 percent to 3 percent.

Though the overall value of Premium Bond prizes is expected to decline, the odds of winning a prize will stay the same at 22,000 to 1 for every bond.

For the prize draw in April 2025, the modifications will take effect.

The Premium Bonds prize fund rate has decreased for the fourth time in a row. It was as high as 4point 65 percent last year.

The following are the updated prize totals and values anticipated to be awarded in the April 2025 Premium Bonds prize draw.

While the prize fund rate for Premium Bonds has decreased, NS&I has raised the interest rate on its Direct ISA from 3 percent to 3 percent with immediate effect. The move, according to NS&I, will benefit savers who wish to maximize their ISA allowance before the tax year ends.

In addition, NS&I increased the interest rate on Income Bonds from 3 percent to 3 percent.

Laura Suter, director of personal finance at AJ Bell, responded to the Premium Bonds prize fund rate cut by saying: "Savers who have money in Premium Bonds should reconsider if they're truly getting the best deal.

Greig Bingham, Head of Financial Modeling at Broadstone, echoed this, saying: "As the declining base rate starts to trickle down into the best market rates, savers will be even more disappointed by the April drop in the Premium Bonds prize fund rate.

The disappointment of many Premium Bonds customers is unlikely to be made up for by the increases in NS&I's ISA savings rates. The reason for this is that NS&Is' rates are still lower than those of a lot of other savings accounts available. Because they provide an additional tax-free savings option that can be combined with an ISA, Premium Bonds are also well-liked.

The director of NS&I retail, Andrew Westhead, stated: "We constantly assess our products to make sure they accurately represent the state of the market. We are continuing to balance the interests of savers, taxpayers, and the stability of the larger financial services industry with the rate changes we are making to Premium Bonds, Direct Saver, and Income Bonds.

What is the prize fund rate for Premium Bonds?

To decide how many prizes should be awarded each month, the NS&I uses the Premium Bond prize fund rate as a benchmark. The average rate of returns for a person with average luck is the new 3point 8 percent.

Although the prize fund rate is 3 percent, you are not assured of achieving that rate of return on an annual basis. Many buyers of Premium Bonds will see lower annual returns, while others will see higher returns.