NS&I is slashing the rate from 4.4% today to just 4% in January. Is it time to move your money?
NS&I is set to take the remarkable step of cutting the Premium Bond prize rate in consecutive months.
It means the rate will fall from 4.4% today to 4.15% in December's draw, and then just 4% in January 2025.
Overall, punters' odds of winning any prize will only fall slightly from 21,000 to one to 22,000 to one after both cuts are implemented, but the reality is their chances of winning bigger prizes will fall far more sharply.
That's because NS&I is going to drastically increase the number of £25 prizes handed out – from 1.5 million now to 1.8 million in January – to keep the odds of winning anything fairly similar, while greatly reducing the number of all the other prizes handed out.
For example, the number of £100,000 monthly prizes will fall from 89 today to 82 in January, while the number of people winning £50,000 will fall from 177 to 166.
Looking at the lower-value prizes, £100 handouts will drop from 2.2 million to 2 million, while £500 prize numbers will fall from 55,674 to 51,831.
The number of £1 million prizes will, however, remain unchanged at two.
You can see the full breakdown of new prizes in the table below.
How Premium Bond prizes will change
|
Value of prizes |
Number of prizes now |
Number of prizes in January |
|
£1,000,000 |
2 |
2 |
|
£100,000 |
89 |
82 |
|
£50,000 |
177 |
166 |
|
£25,000 |
356 |
329 |
|
£10,000 |
887 |
823 |
|
£5,000 |
1,766 |
1,648 |
|
£1,000 |
18,558 |
17,277 |
|
£500 |
55,674 |
51,831 |
|
£100 |
2,224,815 |
2,001,028 |
|
£50 |
2,224,815 |
2,001,028 |
|
£25 |
1,509,458 |
1,815,854 |
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 4% in January, 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 Atom Bank and offers a rate of 4.85%.
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 4% well and truly in the shade.
Earn up to 4.9% on your savings with a top fixed-rate account: compare rates with Moneda Capital
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 up to £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 Trading 212 and pays an impressive 5.17% (see table below), which is simply miles ahead of where the Premium Bond prize rate will be in January.
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.
| Savings product | Rate |
| Trading 212 Cash ISA | 5.17% |
| Atom Bank access savings account | 4.85% |
| Premium Bonds | 4.15% / 4%* |
* From December 2024 the prize rate will fall to 4.15%, then 4% in January 2025.
Premium Bonds falling behind
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 year.
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 1.17% below the best access Cash ISA and 0.85% behind the best access savings account.
Clearly, savers are being asked to pay a larger penalty to be in with the chance of winning a big prize each month.
It will be up to individuals to decide whether that penalty will still be worth paying come January.
Earn up to 4.9% on your savings with a top fixed-rate account: compare rates with Moneda Capital