NS&I unveils second rate cut of 2024 with prize rate falling to just 4.15%. Is it time to move your money?
NS&I has announced it will cut the Premium Bond prize rate from 4.4% to 4.15% from the December 2024 draw.
The decision is a big blow to savers given the remarkable popularity of the bonds, with more than 20 million Brits currently holding them.
It means their odds of winning any prize will fall from 21,000 to one to 22,000 to one, while the number of big prizes will also be cut.
For example, the number of £100,000 prizes will fall from 88 to 83 while the number of people winning £50,000 will fall from 177 to 167.
You can see the full breakdown of new prizes in the NS&I table below.
How Premium Bond prizes will change
|
Value of prizes |
Number of prizes now |
Number of prizes in December |
|
£1,000,000 |
2 |
2 |
|
£100,000 |
88 |
83 |
|
£50,000 |
177 |
167 |
|
£25,000 |
353 |
332 |
|
£10,000 |
883 |
830 |
|
£5,000 |
1,766 |
1,664 |
|
£1,000 |
18,452 |
17,426 |
|
£500 |
55,356 |
52,278 |
|
£100 |
2,212,098 |
2,072,099 |
|
£50 |
2,212,098 |
2,072,099 |
|
£25 |
1,490,033 |
1,509,458 |
How competitive is the new Premium Bond rate?
The rate cut is the second announced by NS&I this year after reducing the rate from 4.65% back in March.
With the rate falling to just 4.15% in December, 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 Chip and offers a rate of 5%.
However, it's important to note that Chip's access account only allows three withdrawals per year.
If you want more regular access to your cash, Monument Bank pays a rate of 4.87% and allows unlimited withdrawals. It's available through savings platform Raisin.
In truth, there are a bunch of easy access savings accounts currently paying more than 4.8% on your funds, leaving the impending Premium Bond prize rate of 4.15% well and truly in the shade.
Win prizes AND earn interest: top Premium Bond alternatives
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.
The best access ISA currently on the market is from Trading 212 and pays an impressive 5.1% (see table below), which again is well ahead of where the Premium Bond prize rate will be in December.
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 | 5.1% |
| Chip access savings account | 5% |
| Premium Bonds | 4.4% / 4.15%* |
* From December 2024 the prize rate will fall to 4.15%.
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 in recent months.
In 2023, the Premium Bond rate exceeded even the best access ISA rate on the market by 0.25% and was only 0.35% behind the best access savings account.
Now, the current Premium Bond rate is 0.7% behind the best ISA and 0.6% behind the top traditional savings account – and that's before you factor in the 0.25% prize rate cut coming in December.
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 December.