NS&I announces another Premium Bond prize rate cut from April 2025

The Premium Bond prize rate will fall to 3.8% from April, marking the third reduction in just five months. Is it time to move your money?

NS&I has announced plans for yet another cut to its Premium Bond prize rate, meaning savers need to think carefully about whether the popular savings product is still right for them.

The rate will fall from the current 4% to just 3.8% as of the April draw, the third rate reduction seen in just five months: back in November, the prize rate was a far more generous 4.4%.  

In order to keep the odds of winning any kind of prize unchanged at 22,000 to one, NS&I will continue its practice of reducing the number of big prizes on offer while ramping up the number of small payouts.

As you can see from the table below, the number of £100,000 prizes will fall from 82 to 78 from April, while the number of people winning £50,000 will fall from 164 to 157.

By contrast, £25 payouts will jump from 1.8 million to 2.17 million from that draw onwards.

The number of £1 million prizes will remain unchanged at two.

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Changes to Premium Bond prizes from April

Source: NS&I

How competitive is the new Premium Bond rate?

The decision is a massive blow to savers given the remarkable popularity of the bonds, with more than 20 million Brits currently holding them.

With the rate falling to just 3.8% in April, many bondholders will no doubt be looking around to see if there are more rewarding homes for their hard-earned savings.

Obviously, most savings accounts don't work like Premium Bonds as they pay a set rate to all savers rather than handing out prizes to select winners.

Perhaps the best comparison is easy access savings accounts, which allow you to deposit and withdraw money in a broadly similar fashion.

The best such account currently on the market is from Monument Bank and offers a rate of 4.75%.

However, it does have a fairly high minimum deposit of £25,000 and only allows three withdrawals, so isn't quite as flexible as Premium Bonds. 

The best account that offers unlimited access and can be opened from just £1 is from Chip, which pays a rate of 4.58%.

In truth, there are a bunch of easy access accounts currently paying more than 4.5% on your funds, leaving the impending Premium Bond prize rate of 3.8% well and truly in the shade.

Manage all your savings accounts in one place with Raisin, the simple savings service

Don't forget about the tax benefits of Premium Bonds

It's at this point we need to factor in tax when comparing accounts. 

One of the big draws of Premium Bonds is that any money you win is completely tax-free. 

That's not the case with traditional savings accounts. Depending on your marginal tax rate, the Personal Savings Allowance lets you earn a maximum of £1,000 in interest before you start paying tax. 

For most savers with small pots, their earnings are effectively tax-free no matter where they save as they'll stay comfortably below this threshold.

But for those with slightly larger pots, tax is very much a consideration. 

With that in mind, it's worth looking at how Premium Bonds compare to Cash ISAs, which are also tax-free. 

And the difference is even more stark here. 

The best access Cash ISA currently on the market is from Plum and pays an impressive 5.03%, which is simply miles ahead of where the Premium Bond prize rate will be in April.

Of course, ISAs come with an annual allowance of £20,000 so might not be suitable for those looking to stash a larger pot of cash, unless you're willing to drip-feed your money into the account each tax year.

How Premium Bonds compare in pounds and pence

To further illustrate the huge difference between Premium Bonds and the best similar savings accounts, let's look at how much you can expect to earn by putting your money into some of these pots.

Obviously, with Premium Bonds involving an element of luck – you could end up winning nothing at all or you could beat the odds and become a millionaire – we'll assume you have average luck and earn a return equivalent to the prize rate, which is 4% now and will be 3.8% from the April draw.

On a £20,000 pot, the average punter would win £760 over the course of a year (going off the lower April prize rate). 

Had you put that money in the Chip access savings account we mentioned earlier, you'd earn £916 over the course of a year (assuming you didn't incur a tax bill).

Put the money in the top Cash ISA from Plum and you'd earn a healthy £1,006 – almost £250 more than with Premium Bonds.

* From April 2025 the prize rate will fall from 4% to 3.8% 
** Assuming average luck

Premium Bonds falling behind

As we mentioned earlier, it's impossible to say definitively whether you'll be better off choosing a traditional savings account over Premium Bonds given the element of luck involved in the latter.

However, there's no question that the bonds have fallen notably behind the best products on the market over the last couple of years. 

Back in 2023, the Premium Bond rate exceeded even the best access Cash ISA rate on the market by 0.25% and was only 0.35% behind the best access savings account.

After the latest round of cuts, the Premium Bond prize rate will be a staggering 1.23% below the best access Cash ISA and 0.78% behind the top access account.

Clearly, savers are being asked to pay a larger penalty to be in with the chance of winning one of the increasingly rare big prizes each month.  

It will be up to individuals to decide whether that penalty will still be worth paying come April.