Generous Premium Bond prize charge is on borrowed time – here is what it is best to do now: SYLVIA MORRIS

I fear the Premium Bonds prize fund rate is living on borrowed time. It’s bound to be cut any day now.

While other providers have slashed rates recently, NS&I has kept the Premium Bonds prize rate at 3.6 per cent since August.

Meanwhile, we’ve had two cuts in the base rate, from 4.25 per cent to 3.75 per cent. And Premium Bonds have started looking like too attractive a home for our money compared to other accounts.

We poured just over £1 billion into Premium Bonds for this month’s draw. 

That is the highest monthly figure for more than a year, and nearly five times as much as the £213 million in August when the prize fund rate – the typical return received by a Premium Bond holder – dropped from 3.8 per cent to 3.6 per cent.

But while some savers win large prizes, the majority will win nothing in any given draw. The average easy-access account paid 2.68 per cent last summer, says data scrutineer Moneyfacts. 

Today, that is down to 2.46 per cent and likely to go lower as more providers cut rates. If the prize fund stays at 3.6 per cent, NS&I is in danger of bringing in too much money.

The Treasury has tasked it with bringing £13 billion into the Government’s coffers in this financial year, which runs until the end of March.

It has already raised £7.57 billion and risks exceeding its target unless inflows slow down. 

If it continued to bring in the same amount each month until the end of its financial year, it would bust its top target of £17 billion.

It is almost duty-bound to cut the rate because it does not want to spend more of taxpayers’ money by paying out prizes than it needs.

Nor does it want to hoover up too much money and take it away from banks and building societies who need it to fund mortgages.

NS&I recently hinted this could start to happen soon unless it cut rates. 

Last week, it cut its fixed-rate Guaranteed Growth and Income Bonds for new savers, saying the move reflects changes in the market and would help it meet its target figure.

But even if the rate is cut, I think most savers will hold on to their Premium Bonds. Savers love the thrill of the monthly draw with its promise of two £1 million jackpots. 

They dream of joining the 570 jackpot millionaires – or winning one of the six million monthly prizes ranging from £100,000 to £25. Even if the odds of winning a prize are only 22,000 to one.

Start building your nest egg this month  

The start of the year is a good time to set up a regular savings account.

These pay top rates and get you into the habit of putting money away each month.

They run for 12 months, and it is a good idea to set up a direct debit to come out of your current account just after you get paid.

Your first port of call is your current account provider. 

For example, Co-op Bank pays 7 per cent on up to £250 a month, while Biscuit, the current account from Zopa, pays 7.1 per cent. 

Both let you dip into your money as and when you need to. 

If your current account provider doesn’t offer an account to suit you, Principality and Newcastle building societies have accounts, open to all, which pay 6.5 per cent.