National Savings and Investments (NS&I) has announced a reduction in the prize fund rate for Premium Bonds from 3.6% to 3.3% per annum, effective from the April draw. This change will affect the odds of winning for the 22 million bondholders in the UK.
The odds of winning a prize with each £1 bond will lengthen from 22,000-1 to 23,000-1. The April draw is expected to include nearly six million tax-free prizes worth approximately £375 million, but the distribution of prizes will shift towards more £25 prizes and fewer high-value awards.
For instance, the number of £100,000 prizes will decrease from 78 to an estimated 71, while £25,000 prizes will drop from 311 to 284. Conversely, the number of £25 prizes is set to increase from about 2.6 million to just over 2.8 million.
Alastair Douglas of TotallyMoney noted that Premium Bonds remain tax-free, which benefits higher-rate taxpayers. He gave an example: a holder with the maximum £50,000 investment winning 3.3% would receive £1,650 tax-free, whereas a higher-rate taxpayer earning the same in savings could face a £743 tax bill.
However, Douglas cautioned that Premium Bonds do not pay interest and are more vulnerable to inflation than other savings. He advised those seeking a guaranteed return to consider savings accounts offering over 4% with easy access, as listed on Moneyfacts best-buy tables.
