Premium bonds 'prize change' guidance as ns&i may face 'pressure'

THE PRIZE FUND RATE FOR PREMIUM BONDS FELL RECENTLY AND NOW A PERSONAL FINANCE EXPERT HAS EXPLAINED WHAT COULD HAPPEN NEXT NICHOLAS DAWSON 11:41, 04 Jun 2025 Premium Bonds savers could see

their odds of taking home a prize fall again this year. The odds of each £1 Bond being paired with a prize is currently 22,000 to one, where it has been since December 2024, while there have

been two reductions in the prize fund rate since then. Personal finance expert Amy Knight, from NerdWallet UK, warned there could be further cuts in the prize fund rate, currently at 3.8%,

as well as to the odds of bagging a prize. She said: "NS&I hasn't yet announced any further changes to Premium Bonds yet, but it's no secret that the prize fund rate is

variable. "Another interest rate cut at the June MPC meeting could put pressure on NS&I to scale back rates or alter the odds of winning, which stand at 1 in 22,000. If the Premium

Bond rate dropped from 3.8% to 3.6%, a saver with £10,000 could expect to win one less £25 prize per year." READ MORE: DWP State Pension alert to everyone born between these two

datesREAD MORE: Some Nationwide customers to get £200 bonuses The central bank reduced the base rate from 4.5% to 4.25% in May, leading many savings providers to lower their rates as a

result. Ms Knight also encouraged Premium Bonds savers to think about another key figure when trying to decide whether to stick with their Bonds or diversify their savings. The prize fund

rate fell from April’s draw, dropping from 4% to 3.8%. Ms Knight explained: "The time to think about cashing in your Premium Bonds would be if NS&I's rate falls below

inflation, as this would mean your money is losing spending power. "Currently, the Premium Bonds rate is 3.8%. The latest CPI data came out at 3.5%, so on average, Premium Bond winnings

will grow holders' cash faster enough to stay ahead of price rises." Savers should remember that the prize fund rate represents the average annual payout rate for the prizes, in

proportion to the total value of Bonds entered into each draw. So with the current 3.8% rate, for every £100 in Bonds entered into the draw, £3.80 in prizes is paid out on average. Article

continues below Yet in reality it's possible not to win anything for an extended period, and in such cases, due to inflation and climbing prices, the real value of your savings will

definitely diminish. Moreover, considering most prizes are small amounts like £25, occasional wins for small amounts may not be enough to overcome the impact of inflation. Ms Knight

highlighted a situation where it might be wise to consider moving away from Premium Bonds: "Another moment to consider cashing in Premium Bonds is when you have a specific savings goal

in mind with a set time horizon, such as saving for an extension or a new car next year. A fixed-term or high-interest notice account could return you guaranteed interest, rather than

keeping your fingers crossed for a Premium Bond prize, which may never come." She recommended looking at alternatives like Moneybox's 95-day notice account, which currently offers

a 4.55% interest rate. For instance, transferring £10,000 from Premium Bonds to this account could net you £455 in interest earnings after a year. However, some savers may prefer the

potential of winning big with Premium Bonds, with prizes on offer of £50,000 or £100,000, or even the £1 million jackpot. To these people, Ms Knight says: "There's always a chance

that you could miss out on a much bigger Premium Bond prize, but for key financial milestones, having certainty is sometimes more important to people." BEST TIME TO CASH IN ON PREMIUM

BONDS For those pondering the best time of year to cash in their Bonds, Ms Knight said you may want to mark certain dates in your calendar. She explained: "If you are a basic rate

taxpayer, you can earn £1,000 in interest before it becomes taxable. "As we're still early in the 2025-26 tax year, you could consider withdrawing some of your Premium Bonds now

and putting the money in a fixed-rate savings account where returns are guaranteed. Locking this in now before the base rate drops again could help you grow your savings pot faster than the

3.8% average return on Premium Bonds. "Once you hit the Personal Savings Allowance (which is only £500 for higher-rate taxpayers), making regular contributions into Premium Bonds or an

ISA keeps any further gains out of the taxman's reach." Ms Knight recommended reviewing your savings strategy as the end of the tax year approaches, when nearing the April 5

deadline. Article continues below It's good practice to assess all your savings at this point, including any Premium Bonds, ISAs, and savings accounts, to ensure you're earning the

most interest possible without incurring a tax charge from HMRC. Ms Knight said: "The strategy that works best for you will depend on what you've earned this tax year and what you

expect to earn in the year ahead. An independent financial advisor can give you a personalised plan on how to maximise your tax-free allowances."