Premium Bonds holders are being urged to reconsider their savings strategy following changes to the prize draw announced by NS&I. The provider has confirmed that the prize fund rate will rise from 3.3 per cent to 3.8 per cent starting with the July draw, while the odds of winning for each £1 Bond will improve from 23,000 to one to 22,000 to one. However, this increase comes shortly after NS&I cut the rate from 3.6 per cent to 3.3 per cent in April, with odds worsening from 22,000 to one to 23,000 to one. The April change was one of three reductions to the prize fund rate in 2025.
Jennifer Crichton, senior wealth planner at wealth management group Killik & Co, warned that savers should not assume the current rates will remain unchanged. She explained that the prize fund rate for Premium Bonds is variable and broadly tracks the Bank of England rate, so as interest rates have fallen, the effective rate has followed, and savers should expect fluctuations. Crichton advised those who rely heavily on Premium Bonds as a primary savings vehicle to build a broader savings plan rather than assuming prize fund rates will stay the same.
Crichton recommended a “three-pot framework” for savings. The first pot is an emergency fund, typically covering three to six months of essential outgoings, held in cash for immediate access. She noted that Premium Bonds can sit in this pot, as they are Government-backed and can be accessed upon request. The second pot covers near-term goals, such as money needed within the next three to five years for foreseeable costs like larger payments or planned purchases. For these medium-term objectives, she suggested looking at the highest-paying fixed-term savings accounts or cash ISAs, which offer more predictable interest than Premium Bonds.
The third pot is for long-term savings, money not expected to be needed for at least five years. Crichton said investing is likely the best option to grow this pot and protect against inflation, with Stocks and Shares ISAs being a tax-efficient choice due to tax-free growth and withdrawals. However, she stressed that all investing carries risks. Keeping the three pots distinct is important to ensure long-term savings can work harder, while Premium Bonds remain a liquid, low-risk aspect of an overall plan.
NS&I can change the terms of Premium Bonds at any time, meaning the likelihood of winning can fluctuate, and savers could go months or even years without receiving a prize. As the broader savings landscape evolves, experts suggest regular reviews of one’s savings strategy are essential.
