Key facts
- National Savings and Investments (NS&I) is increasing the premium bond prize fund rate to 4.35% from 3.8%.
- The change, effective from the September draw, improves the odds of winning from 22,000-1 to 21,000-1.
- An estimated 308,000 more prizes will be available in the September draw.
- The number of higher-value prizes will increase, while the number of £25 prizes will decrease.
- Premium bonds offer tax-free winnings but do not provide guaranteed interest.
Premium bond holders will see an increased chance of winning prizes following changes announced by National Savings and Investments (NS&I). Effective from September's draw, the premium bond prize fund rate is being raised from 3.8% to 4.35% annually. This is the second such increase in two months, signaling NS&I's effort to attract more funds.
With the new rate, the odds of winning with each £1 bond number improve from 22,000-1 to 21,000-1. NS&I estimates that approximately 308,000 more prizes will be available in the September draw, boosting the total prize pot to an estimated £497 million. The increase will particularly benefit higher-value prizes, with the number of £100,000 prizes rising from 83 to 95 and £50,000 payouts increasing from 165 to 192. Conversely, the number of £25 prizes will be reduced from nearly 2.3 million to about 1.7 million.
Premium bonds offer tax-free winnings, which can be advantageous for higher-rate taxpayers. For instance, holding the maximum £50,000 in bonds could yield £2,175 tax-free if winning at the new rate. However, a significant drawback is the absence of guaranteed interest, making them more vulnerable to inflation compared to traditional savings accounts. Furthermore, there is no certainty of winning any prize at all; data from AJ Bell revealed that 62% of premium bond holders have never won a prize.
Experts caution that the quoted 4.35% should not be mistaken for a guaranteed headline rate, as premium bonds are a game of chance. With the ongoing cost of living pressures, some savers may prefer guaranteed returns from savings accounts, which are currently offering up to 5% interest. Analysts also note that for those holding smaller amounts, the likelihood of winning is even lower, with less than 1% of prizes going to accounts under £1,000. Despite these caveats, potential changes to cash Isa allowances next spring might lead more individuals to consider premium bonds.