NS&I could offer 'better rates' on Premium Bonds due to key Government target

Premium Bonds savers frustrated to see the prize fund rate fall again this month may have a change of fortune over the coming months.

NS&I cut the rate from 4% to 3.8% from April, following rates cuts in January and in December last year, but they may increase the rate again in efforts to meet Goverment financing targets.

Matthew Parden, CEO and co-founder of savings provider , explained why there could be a change in direction for the prize fund rate.

He said: "The recent Spring Statement announced that the NS&I had been assigned a net financing target of £12billion for this tax year, which is higher than the previous year's target of £9billion.

"This means that the NS&I has been asked to raise more money for the Treasury, much of which is from Premium Bonds. This might result in NS&I needing to be more competitive in the savings market and offer better rates."

But the finance expert is of the opinion that the rate will likely drop further. Mr Parden said: "However, it's possible that the Premium Bonds rate or the odds of winning could continue to decrease, especially if economic conditions remain tough.

"While a further reduction in the prize fund rate is likely, as base rates are expected to reduce, it's unlikely to be drastic in the short term.

"If the rate continues to fall, the odds of winning may also decline, as fewer winners would be able to share the reduced prize pool."

The odds of winning for each £1 are currently at 22,000 to one. Each £1 Bond goes into the monthly draw with an equal chance of winning a prize, which range from £25 to one of the £1million jackpots.

Despite the falling rates, Mr Parden said some savers may still be suited to Premium Bonds. He commented: "Premium Bonds suit individuals who are risk-averse but still want the opportunity to win tax-free prizes, without the risk of losing their initial investment.

"They are particularly suitable for savers who have a longer-term outlook, as the Bonds may not provide regular returns, but rather the chance of a one-off win.

"Premium Bonds also appeal to those who do not need immediate access to their funds and are comfortable with the possibility of receiving no return at all in a given month."

You can hold up to £50,000 in Premium Bonds. People often arrange their accounts so any winnings are automatically used to buy more Bonds.

For those thinking of cashing in their Bonds, Mr Parden encouraged to look at savings products with more predictable returns.

Explaining the options, he said: "High-interest savings accounts, which offer better interest rates than Premium Bonds, could be more suitable for those who prefer regular returns.

"Fixed-rate bonds, where the interest rate is guaranteed for a set period, are also a good alternative for savers who can afford to lock away their money."

One advantage of Premium Bonds is the prizes are entirely tax-free, which is a major perk if you take home one of the big cash prizes, which include amounts for £100,000 and £50,000, as well as the £1million top prize.

If you are concerned you could get a tax bill on your savings earnings, Mr Parden suggested an alternative: "For those seeking tax-free options, ISAs (Individual Savings Accounts) could be a good choice, offering higher rates with the added benefit of being tax-efficient. For longer-term growth, stocks and shares ISAs might be worth considering, though they come with higher risk."

Any interest earnings or savings growth within an ISA is tax-free.