Money-saving guru Martin Lewis’s website, MoneySavingExpert.com, has offered insights into the worth of Premium Bonds after NSandI unveiled a major change this week. Starting with the April 2025 draw, the Premium Bonds prize fund rate will plummet from 4.00% to 3.80%.
What this translates to is fewer prizes up for grabs, given that a lower prize fund rate means less money allocated for winnings, much like a decrease in interest rates.
To illustrate how Premium Bonds operate, for every £100 invested, £4 is currently set aside for prizes. This figure will soon drop to £3.80.
However, it’s worth noting that the minimum prize amount is £25. So, in reality, the payouts aren’t spread evenly across all bonds.
MSE’s Premium Bond Probability Calculator paints a clearer picture: if 20 people each invest £100 for a year, chances are high that 19 won’t win a thing, while the remaining person stands to win at least £25. This is because, instead of earning interest, Premium Bonds automatically enter you into a monthly draw with prizes ranging from £25 to £1 million, reports Leicestershire Live.
It’s all about luck, with some months potentially yielding no wins.
MSE cautions that, with the looming decrease in Premium Bonds’ prize fund rate, sticking your money in a conventional savings account is likely to yield better results for most individuals. As MSE points out: “For most savers with average luck, and who don’t pay tax on savings interest, normal savings will now be even more likely to beat Premium Bonds.
“Savings provide a guaranteed return in the form of interest – so if you secure the top easy-access cash ISA rate of 5.05%, you’d earn £50.50 in interest annually for every £1,000 saved,” it was explained.
Despite a decrease in the prize fund rate, the odds of winning with Premium Bonds remain steady at 22,000 to one. NSandI has also revealed changes to several of its savings products.
The Direct ISA’s interest rate will increase from 3.00% AER to 3.50% AER. On the other hand, reductions will be seen in the Direct Saver from 3.50% gross/AER to 3.30% gross/AER, and the Income Bonds from 3.44% gross/3.49% AER to 3.26% gross/3.30% AER.
These adjustments are scheduled to come into effect from March 5. Andrew Westhead, NSandI Retail Director, commented on the updates: “The changes we are making to Premium Bonds, Direct Saver and Income Bonds rates enable us to continue to balance the interests of savers, taxpayers and the stability of the broader financial services sector. Even with the change to the Premium Bonds prize fund rate, we are expecting more than 5.9 million tax-free prizes worth over £411 million to be won in the April 2025 draw.”