NS&I warns of major change for anyone with Premium Bonds from April

The prize fund rate is being reduced from April

National Savings and Investments (NS&I) has warned that from April, the prize fund rate for Premium Bonds is reducing by 0.2% from April.

While the prize fund rate is dropping from 4% to 3.8%, Premium Bonds provider NS&I said the odds of winning will remain the same - at 22,000 to one. This reduction in the prize fund rate means that the same amount of people will win, but there will be fewer large prizes.

As an example from April, the estimated number of £100,000 prizes will decrease from 82 in February to an estimated 78 in April. The number of £50,000 prizes will fall from 164 in February to an estimated 157 in April, while the number of £25,000 prizes will reduce from 328 to around 313 over the same period.

Following in a similar pattern, the number of £10,000 prizes will fall from 820 in February to an estimated 781 in April, however the number of £1 million prizes up for grabs will remain the same, at two. There will be more chances to win a £25 prize, with the number increasing from 1,807,915 in February to an estimated 2,170,903 in April.

And the total value of the prize pot will reduce from £430,052,425 in February to an estimated £411,118,825 in April. The number of prizes will remain around the same level, at 5,864,354 in February and an estimated 5,901,229 in April.

As the end of the tax year approaches, NS&I has also increased the interest rate on its Direct Isa to 3.50% AER (annual equivalent rate) from Tuesday, from 3.00%. From March 5, the interest rate for NS&I’s Direct Saver will fall to 3.30% AER from 3.50% and the rate on Income Bonds will decrease to 3.30% AER from 3.49%.

And now, a financial expert from Hargreaves Lansdown has warned Brits that this may not be the end of the prize find reductions.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Premium Bond woes may continue even after the NS&I fundraising target increases.

“NS&I had a massive third quarter, delivering £5.5 billion, which explains the raft of recent rate cuts. It meant the organisation had almost entirely filled its boots for the current tax year, when it had three months left to run.

“We’re yet to get the latest of these cuts – the Premium Bond prize cut set for April – when it falls from 4% to 3.8%. The question for many savers is whether this will be the last.

“On the one hand, the fundraising target will rise to £12 billion. On the other, we’re expecting savings rates to fall across the market, and the prize rate is likely to fall in step with it. The rush into NS&I in the third quarter shows how much pent-up demand there is."

Ms Coles added: “Sadly for bond holders, it means this is unlikely to be the last of the cuts to the prize rate.”

A spokesperson from NS&I said: “NS&I reviews the interest rates on all of its products regularly and makes changes when they are appropriate, to ensure that it balances the interests of savers, taxpayers and the broader financial services sector.”