National Savings and Investments (NS&I) has announced that the odds of winning a prize on premium bonds will worsen from April. The proportion of the total invested amount paid out in prizes will be cut from 3.6% to 3.3% a year, meaning the odds of winning with each £1 bond will lengthen from 22,000-1 to 23,000-1.
The April draw is expected to have close to six million tax-free prizes worth about £375m. However, NS&I has trimmed the number of higher-value prizes and increased the number of £25 ones. For example, the number of £100,000 prizes will fall from 78 this month to an estimated 71 in April, while the number of £25,000 payouts will be cut from 311 to 284. The number of £25 prizes will rise from about 2.6m to just over 2.8m.
Alastair Douglas at the consumer credit website TotallyMoney noted that one advantage of premium bonds is that they are tax-free, which benefits higher-rate taxpayers. “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, a major downside is that premium bonds do not pay interest and are more vulnerable to inflation than other savings. Douglas advised those seeking a guaranteed return to shop around for a decent bank or building society savings account, as some are offering more than 4% with easy access.
