Premium Bond prizes shrink as NS&I cuts savings rates

Rates are being cut from June, as NS&I busts Government money-raising targets

Premium Bonds will still pay out two £1m jackpots each month (PA)

Premium Bonds are set to become a little more unattractive. The number of prizes handed out each month is being cut reducing the chances of winning any prize from 26,000 to one to 30,000 to one.

Meanwhile National savings & Investments – the government-backed body that issues the Bonds – is cutting rates on its savings accounts.

The changes, which come into effect in June, will see rates on the top-paying Direct Isa fall by a fifth, from 1.25 per cent to 1 per cent, with a similar cut on Income Bonds.

Interest on NS&I’s Direct Saver account will slump from 1.1 per cent to 0.8 per cent while, from July, the Investment Account rates will shrink to 0.45 per cent from 0.75 per cent.

Jane Platt, chief executive, NS&I, said the changes are necessary to meet Government targets. “Downwards movements in interest rates across the cash savings market mean that our rates have risen in the competitor tables,” she said.

That means it has been attracting too much savings’ money leaving it raising £1.5bn more in the 2015/16 tax year than forecast. As a consequence it has been told by the Treasury to raise less money in 2016/17 than it did in the current tax year.

“This is another serious blow for savers who like the absolute security offered by NS&I,” said Danny Cox of Hargreaves Lansdown. But he added that while Premium Bonds are looking increasingly unattractive with the number of prizes and the total prize-pot falling, “they may still be a solution for higher rate taxpayers looking for a temporary home for some of their cash.”

The number of £100,000 prizes will fall from five this month to two in June and the number of £50,000 prizes would fall from 12 to five. The total prize payout will drop from £67.5m to £62.9m.