It’s disappointing news for the 24 million of us who hold out hope every month of a Premium Bond win.
As I predicted in Money Mail last week, Government-run National Savings & Investments (NS&I) is cutting the amount it pays out in prizes. The Premium Bonds prize rate will fall to 4.15 pc in December, from a current 4.4 pc. That means £25.6 million less paid out — with 264,868 fewer prizes. The odds of winning will fall to 22,000 to 1 from the current odds of 21,000 to 1. NS&I claims the change has been made in response to a changing savings market.
I suspected a cut was on the cards, but it is a surprise move by NS&I just a week before the Budget when the Chancellor could make announcements affecting its strategy.
At 4.4 pc, the Premium Bond prize draw rate was still attractive compared with ordinary easy-access accounts where top rates are from 4.87 to 5 pc. Especially, given the fact that prizes are tax-free
It tells me money is pouring in to NS&I at such a rate that it is in danger of overshooting the target amount it needs to raise this year.
At 4.4 pc, the Premium Bond prize draw rate was still attractive compared with ordinary easy-access accounts where top rates are from 4.87 to 5 pc. Especially, given the fact that prizes are tax-free.
And it should remain so. The Bank of England is likely to cut base rate from its current 5 pc at its next meeting on November 7, and perhaps again in December.
Banks have been cutting savings rates already and should make more reductions at the end of the year.
With this in mind, I am keeping my Premiums Bonds. I find they are great to hold money that’s needed soon, but may as well be put to work until then. After the cut, there will still be two £1 million jackpots but five fewer £100,000 winners. The most affected will be the prizes worth £100 and £50, down 139,999 apiece to 2,072,099 each.
NS&I has also announced sweeping cuts across its Direct Saver account and fixed-rate bonds. From November 20, the interest rate on its Direct Saver will fall by 0.25 percentage points from 4 pc to 3.7 pc.
Its Income Bonds will fall for the first time since September 2020 – from 3.93 pc to 3.69 pc.
The new issue of the two-year British Savings Bond went on sale yesterday at a lower rate of 4.10 pc.
The two-year Guaranteed Growth Bonds and Guaranteed Income Bonds have also had a 0.15 point shave, to 4.1 pc and 4.02 pc, respectively with effect yesterday.
SAVE MONEY, MAKE MONEY
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence. *Chase: 3.69% gross. Ts and Cs apply. 18+, UK residents