Britain's 22 million premium bond holders face a reduction in their chances of winning a prize from April, after National Savings and Investments (NS&I) announced it is cutting the prize fund rate from 3.6% to 3.3% per year. The odds of winning with each £1 bond will lengthen from 22,000-1 to 23,000-1.
Premium bonds offer tax-free prizes ranging from £25 to £1m in a monthly draw, but there is no guarantee of any return. The April draw is expected to include nearly six million tax-free prizes worth around £375m, though NS&I has reduced the number of higher-value prizes while increasing the number of £25 prizes. For instance, the number of £100,000 prizes will drop from 78 to an estimated 71, and £25,000 prizes from 311 to 284, while £25 prizes will rise from about 2.6m to over 2.8m.
Alastair Douglas of TotallyMoney noted that premium bonds remain attractive for higher-rate taxpayers due to their tax-free status. “For example, if you held the maximum amount of £50,000 and won the equivalent of 3.3%, that’s £1,650 tax-free. A higher-rate taxpayer earning the same in savings could face a bill of £743,” he said.
However, premium bonds do not pay interest and are more vulnerable to inflation than other savings. Douglas advised those seeking a guaranteed return to consider bank or building society savings accounts, some of which offer over 4% with easy access. For the latest rates, check the Moneyfacts savings best-buy tables.
