It has been announced that from February 2023, National Savings & Investments (NS&I) will increase its Premium Bond prize fund rate to 3.15%. They will also be changing the way prizes are awarded by reducing the number of lower value £25 prizes and increasing the number of higher-value prizes available.
Back in January 2022, around 98% of all Premium Bond prizes paid out by NS&I were just £25 in the monthly draw of 1 in 34,500. In order to deal with low interest rates, they had cut their prize fund rate to 1.0% in December 2020. In an attempt to hold onto the two £1 million prize winners each month there was then less money available for other prizes.
However, in 2022 interest rates began to rise again and the prize offering started to improve. In January 2023 NS&I announced an additional Premium Bond prize rate increase was to take effect at the start of February. The prize rate is now 3.15% and the chances of a win at the monthly draw are 1 in 24,000. This means that just over half of all prizes will be £25, and 99% of the prizes will be £100 or less as the table below shows.
| Prize amount | Proportion of prize-winners in month |
| £1,000,000 | 0.000040% |
| £100,000 | 0.001122% |
| £50,000 | 0.002243% |
| £25,000 | 0.004466% |
| £10,000 | 0.011196% |
| £5,000 | 0.022392% |
| £1,000 | 0.240002% |
| £500 | 0.720005% |
| £100 | 23.250769% |
| £50 | 23.250769% |
| £25 | 52.496996% |
Source: NS&I.
As of 31 March 2022, nearly £120 billion was invested in Premium Bonds, which is around 58% of all NS&I’s funds and by far their best-selling product. If it wasn’t for Premium Bond sales, NS&I would have seen a £5.66 billion cash outflow in 2021/22.
Are Premium Bonds a good place for savings?
Looking at Premium Bonds for savings, the 3.15% prize interest rate is better than what NS&I offers on its other variable interest rate products – Income Bonds have an annual equivalent rate of 2.32%, and Direct ISAs only 1.75%. Premium Bond prizes are also tax free.
If you have a significant amount of money in your savings and pay the higher or additional rate of income tax, then Premium Bonds could offer a safe and tax-free home for a short-term cash reserve. This is especially important for those able to fully fund their ISAs each tax year.
The maximum investment amount in Premium Bonds is £50,000, but if you are considering placing a large sum like that into bonds, you would be well advised to seek financial advice before doing so.
If you would like to speak to our team of trusted advisers, please do get in touch.
