Big change to Premium Bonds coming in weeks – see how your chances of winning are affected
A BIG change is coming to Premium Bonds next month and it could affect your chances of winning.
NS&I has announced that it will slash Premium Bonds prizes from the December draw onwards.
The Treasury-backed savings provider has revealed that prize fund rates will be reduced to 4.15% from 4.40% currently – weakening the chances of you winning big.
Back in March, the NS&I prize fund rate was cut from 4.65% to 4.40%.
Chances of winning will fall from 22,000 to 1 from where it was 21,000 to 1 previously.
There will still be an estimated two prizes of £1million in the December draw, the same as in October.
But in total there will be an estimated 5,726,438 prizes worth £435,686,300 in December, down from 5,991,306 prizes worth £461,330,525 this month.
It comes after the Bank of England cut base rates for the first time in a year in August, and further reductions are expected over the coming months.
NS&I, which is backed by the Treasury, has a duty to balance the needs of savers, taxpayers and the wider financial market.
Andrew Westhead, NS&I retail director, said: “As the savings market continues to change, we need to lower the rates on some of our products to help us meet our net financing target, while also ensuring we continue to balance the interests of our savers, taxpayers and the broader financial services sector.
“Even with the changes, we’re still expecting to pay out over 5.7million prizes worth over £435million in the December Premium Bonds draw.”
Not only that but for the first time since November 2020, NS&I will cut interest rates for Direct Saver and Income Bonds.
From November 20, the variable interest rate for Direct Saver and Income Bonds will change to 3.75% AER (annual equivalent rate), from 4% at the moment.
A new two-year issue of British Savings Bonds has also gone on sale offering 4.10% AER for the Guaranteed Growth Bond option and 4.09% AER for the Guaranteed Income option, both down from previously offered rates of 4.25%.
What do the experts say?
And finance experts at AJ Bell revealed that most Premium Bond holders will never win a prize.
Recent figures from an FOI obtained by AJ Bell showing two-thirds of those holding the bonds have never won.
Laura Suter, director of personal finance at AJ Bell, said: “Premium Bonds will see their ‘effective prize rate’ drop to 4.15% and their odds reduced to 22,000 to 1 from the December draw, something which may prompt some of the around 22.5million bond holders to reconsider their position.
“The prize rate only accounts for the average rate paid out on prizes, but in reality there is no guarantee of receiving any return as many bond holders will never win a prize, particularly those with smaller amounts of cash saved in the bonds.”
When you factor in that many people will have been holding Premium Bonds for decades, perhaps receiving them as gifts when they were young, that means they may have missed out on significant returns in a higher paying cash account or by investing.”
She also said the change is a sign that the savings market is preparing for more interest rate cuts from the Bank of England.
She said: “Despite the interest rate cuts, these accounts are still likely to continue to be very popular as they are backed by NS&I and many savers have huge brand loyalty to the organisation.
“But with another interest rate cut now expected at the next Bank of England monetary policy meeting in November, as well as potentially a further cut in December, savers should remain alert to the changes in the savings market and explore the best rates where they can.”
Sarah Coles, head of personal finance, Hargreaves Lansdown, agree that the news reflects the market and that the Premium Bond prize rate has “finally been hit with the business end of the savings rate scythe”.
She explained: “This was always going to happen eventually. NS&I has a duty not to overpay for the money it raises for the Treasury, which means the prize rate needs to be middle of the pack within the easy access savings market.
“After the Bank of England rate cut, these have been heading downhill, albeit impressively slowly. Moneyfacts figures show the average easy access account is currently offering 3.04% – compared to 3.13% two months ago, and Premium Bonds have finally succumbed.”
Ms Coles did point out that the prize rate doesn’t reflect what you’ll make in these bonds, and because of the “lumpy” way that prizes are awarded, the average person with £1,000 in bonds will still win nothing in the average month.
“The lengthening of the odds of a win should be food for thought for anyone who is holding money in these accounts and losing money after inflation,” she added.
Referring to the rate reductions on the new launch of British Savings Bonds, Ms Coles added: “You can do far better elsewhere, with the best on the market offering 4.6%.
“And while the Treasury guarantee of your savings and the attraction of the brand will go a long way, for plenty of people it’s not going to make up enough ground. These bonds look unlikely to shake or stir anyone.”
Where to find the best savings rates
Many savings accounts offer miserly rates meaning that money is generating little or no return.
However, there are ways to get your cash working hard. Sun Savers Editor Lana Clements explains how to make sure you money is getting the best interest rate.
Easy access savings accounts offer flexibility for customers, meaning they can dip in and out of cash when needed. However, the caveat is that rates can change at any time.
If you’re keeping your money in an easy access account, you’ll need to keep checking whether it’s the best paying account for your circumstances and move if not.
Check in at least once a month to see what is happening in the market.
Check what is offered by your bank – sometimes the best rates are for customers only.
But do search the wider market as often top savings accounts are offered by lesser known providers.
Comparison sites are a good place to check for the top rates. Try Moneyfactscompare.co.uk or Moneysupermarket.
You can search by different account type. You’ll usually get a better interest rate if you can lock your money away for a fixed amount of time, but it’s always a good idea to keep some money in an easy access account in case of emergencies.
Don’t overlook regular savings accounts often pay some of the best rates, but you’ll need to commit to monthly payments. This can be a great way to get into a savings habit while earning top rates at the same time.
What are Premium Bonds?
Premium Bonds are a type of savings account that doesn’t offer interest payments like conventional accounts.
Instead, you’re given the chance to win a prize worth up to a whopping £1million every month.
Premium Bonds can be bought from the government-backed National Savings and Investments (NS&I) which also offers a variety of other savings products too.
Because Premium Bonds are government-backed, your money is safe and there’s no risk of losing your cash.
You can put money in and take it out whenever you want but need to put in a minimum of £25 to get started and you can invest up to £50,000.
Each £1 you put in Premium Bonds is an entry into the monthly prize draw.
What are the Premium Bond prizes?
The draw is held each month and the winning number is picked by a computer called ERNIE (which stands for electronic random indicator equipment).
There are three kinds of prizes:
- Higher value prizes of £5,000, £10,000, £25,000, £50,000, £100,000 and £1million
- Medium value prizes of £500 and £1,000
- Lower value prizes of £25, £50 and £100
How likely am I to be a winner?
The chance of winning a prize with an individual bond right now is 21,000 to one.
Each bond has an equal chance of winning and the more you buy, the more your chances improve.
You can check your odds depending on how many bonds you have and how long you’ll keep them using MoneySavingExpert.com’s helpful calculator.
This makes it easier to see if Premium Bonds are right for you, or if you’d be better off with another savings account.
It’s also worth noting that Premium Bond winnings are tax-free.
Anyone who has used up their annual ISA limit or personal savings allowance could benefit by saving into Premium Bonds.
How do I check if I have won?
You can use the NS&I Premium Bond prize checker online to see if your numbers have come up.
You’ll need to know the numbers of your Premium Bonds which you can find on your Bond record or online account.
If you’ve lost track of your numbers you can reach out to NS&I and ask for them.
There’s also an official app for iPhones and for Androids for checking prizes too, and even an App for Amazon Echo which means you can just ask Alexa.
For this, you will need to use your NS&I number rather than each Premium Bond number.
It’s 11 digits long and should be on any communication you’ve had with NS&I.
You don’t always need to check your numbers as you can get prizes under £5,000 paid straight into your bank account, or automatically buy more Premium Bonds.
For higher value prizes worth more than £5,000 NS&I will contact you by post and if you scoop the £1million jackpot, someone will pay you a visit to let you know!
Note that NS&I will no longer send out prize cheques in the post.
Before you sign up, it’s important to check how it compares to the rest of the market to make sure you get a good deal.
In other banking news, a major bank is offering customers a £175 cash bonus but you will need to act fast.
Another major bank is giving away £200 in free cash with one easy move.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.
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