Savers with Premium Bonds will be disappointed to hear that the prize pot will be reduced by almost £6 million on 1 May 2017, National Savings & Investments (NS&I) has announced.
The prize fund is currently worth £69,516,050 but this will fall to £63,810,400. In addition, the number of £100,000 prizes in each draw will reduce from three to two while the number of £25,000, £10,000, £1,000, £100 and £50 prizes will also fall – although there will be a slight increase in the number of £25 prizes.
The change means the effective prize rate is reduced from 1.25% to 1.15%. So while the chances of winning a prize remains at one-in-30,000, the number of high value prizes in each month’s draw will fall.
NS&I says the move is in response to the Bank of England reducing the base rate in August 2016.
NS&I is also planning to reduce the rate on three variable rate savings products. Its Direct Isa will have its rate slashed from 1% to 0.75%, the Direct Saver will reduce from 0.8% to 0.7% and its Income Bond will go from 1% to 0.75%. These changes will also take place on 1 May 2017.
Steve Owen, acting chief executive of NS&I, says: “We have taken the time to absorb the impact of the Bank of England base rate reduction and subsequent changes across the savings market. The new rates reflect current market conditions and allow us to continue to strike a balance between the needs of our savers, taxpayers and the stability of the broader financial services sector.”
Industry experts disagree on whether it's worth sticking with Premium Bonds.
Danny Cox, chartered financial planner at Hargreaves Lansdown says: "Ironically with so little interest on cash for savers, Premium Bonds look more attractive – if your savings are returning basically nothing, you might as well opt for the chance of the jackpot prize."
But Adrian Lowcock, investment director at Architas says: "Premium Bonds just do not add up for savers looking for ways to boost their returns. The average yield is a misleading figure as the returns are skewed to those few savers who win a prize.”
This is another big hit for savers as both the Direct Isa and Income Bond were riding high in the best buy tables, and there are few places for savers to turn to at present. Today’s top easy-access saver comes from RCI Bank, yet this account offers just a 1.1% rate of interest.
A current account may be better for those with smaller deposits, as you can earn up to 5% interest.
For Premium Bond subscribers this is the second blow in less than a year after the odds of winning a prize were slashed from one-in-26,000 to one-in-30,000 in June 2016.
But while the number of big prizes has fallen, it’s easy to understand people sticking with Premium Bonds as there is little to shout about elsewhere.
One ray of light is NS&I’s plan to launch Investment Guaranteed Growth Bonds in the spring. This three-year bond will offer a return of 2.20%, but this is limited to £3,000 per person so will be little consolation to those with more cash in savings.
The table below details the full round-up of Premium Bond changes
|Value of prizes||Number of prizes in February 2017||Number of prizes in May 2017 (estimate)|
|Total number of prizes||2,224,513||2,219,493|