The News: The Premium Bond prize fund payouts are about to be cut. The average rate of return will fall from 4.65% to 4.4% from March.[1] It's going to affect a lot of people, as more than 24 million people invest in premium bonds, with a combined pot of £122.7 billion.
It's a big change of direction. Back in August the Premium Bond prize-fund rate rose from 8 times in just over a year – is to the highest rate since March 1999. [2]
Premium Bonds have proved fantastically popular, so popular that NS&I, which run the scheme, are quickly trying to make themselves less attractive. NS&I were tasked with raising £7.5 billion for the Treasury this year, with £3 billion of wiggle room either way. However, through the first eight months of 2023, it has raised a net £12.9 billion according to the Bank of England.
Last year the trade association UK Finance wrote to NS&I after the release of its market-leading 6.2 per cent one-year fixed-rate bonds in August, to complain that it had a distortionary effect on the savings market. So there is pressure on NS&I not to be too good.[3]
The Gamble: The odds of a £1 bond winning any prize a month, from £25 to two £1 million jackpot prizes, will remain the same at 21,000 to one. However, the number of available prizes will fall from 5.84 million this month to 5.77 million in March.
Although they work out the likelihood of winning for a £1 stake, the minimum purchase is £25. The maximum amount you can pay in is £50,000.
Odds
Being struck by lightening - The Royal Society for the Prevention of Accidents says 30 to 60 people get struck by lightning in Britain each year, which would place the odds to be less than one in a million.
Winning on a single monthly draw in Premium Bonds: 21,000 to 1
Winning Any Prize in The National Lottery - The overall odds of winning any prize is 1 in 12.4.[4}
Having Twins: The chances of having twins is 1 in 250 [5]
But remember you keep getting to play the premium bond draw at no extra cost - so you get multiple attempts, which is not true of the National Lottery.
In January there were:
2 X £1million prizes
91 X £100,000 prizes
182 X £50,000 prizes
And as the prize gets smaller, the number of winners increase. [1]
It comes as variable savings rates have slowly started to fall in anticipation the Bank of England will soon cut the base rate from 5.25 per cent. The rate of inflation has fallen from 10.1 per cent last January to 3.9 per cent in November.
How It Compares: While the best easy-access rate remains 5.22 per cent from Metro Bank, the number of accounts paying more than 5 per cent has fallen from 16 last week to 14.
How It Works: A Bletchley Park code breaker invented the first ERNIE in 1956. Following this, Harold Macmillan announced the launch of Premium Bonds on Budget Day, 17 April 1956, offering everyone an alternative way to save. Since then, there have been five generations of ERNIE and with continuous advances in technology, each has become faster and more powerful.
You can buy the premium bonds easily online and there is a great app you can use which tells you if you won each month. Any prizes are tax-free and if you want your money back, you can cash it in and get the original investment back. In that way, it works a bit like a magical lottery ticket, where if you don't win - it gets entered into the next draw for free and keeps getting entered every month until you ask for your money back. The drawback, is that although you get your original investment back, there is no interest paid and so the real value of your investment will have fallen, unless you are luck enough to have won.
However, freedom of information requests to National Savings and Investments (NS&I) in 2021 and 2022 revealed that about three-quarters of all premium bond savers have never won a prize.[6]
Sources: