Premium Bond customers face ‘real risk’ as NS&I makes major changes

Key changes to Premium Bonds are already coming in very soon

Premium Bond holders would be wise to think over their savings strategies, as NS&I announces some key changes. The latest announcement from the provider comes as key changes to Premium Bonds are already on the horizon.

In previously announced news for savers, NS&I is increasing the prize fund rate for Premium Bonds from 3.3 per cent to 3.8 per cent from July. The odds of each £1 Bond winning a prize are also improving, moving from one in 23,000 to one in 22,000. The monthly Premium Bonds draw offers the chance to scoop substantial prizes, ranging from £100,000 and £50,000 right up to a £1million jackpot, with two £1million prizes on offer every month.

Account rate changes

NS&I has now launched new issues of its British Savings Bonds, boasting improved rates, as well as a rate increase for its Green Savings Bond. Andrew Westhead, NS&I retail director, said: “We regularly review our products to ensure they reflect current market conditions, and today’s [June 23] increases respond to changes in the fixed-term savings market.

“Our fixed-rate bonds offer savers the choice of different term lengths with the certainty of knowing the interest rate they will receive over the full term, alongside the reassurance that all money invested with NS&I is 100 per cent secure, backed by HM Treasury.”

Could the Premium Bonds rate increase again?

With savings rates receiving a welcome boost, Premium Bonds holders may be wondering whether they too are in line for some more positive news. Sarah Coles, head of personal finance at investment platform AJ Bell, said: “This change will inevitably raise the question of whether it means the Premium Bond prize rate is set for a boost too.

“The good news is that it’s already set to rise in July – which was announced last month. The bad news is that NS&I might decide this is enough to retain its customers at a time when the next interest rate movement is expected to be downwards.

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“It will still need to hit its funding targets, but is likely to have an eye on how successful this round of hikes is before it considers another rise for its flagship savings product.” Ms Coles was asked by how much the rate could shift over the months ahead.

‘A notable jump’

The upcoming July prize rate rise follows NS&I’s recent decision to slash the prize rate from 3.6 per cent to 3.3 per cent, from the April draw. Ms Coles said: “The current prize rate is 3.3 per cent and is set to rise to 3.8 per cent in July.

“This is quite a notable jump, so we wouldn’t usually expect another significant move soon, unless there are some big shifts in the broader market. On balance it seems likely that the next move might be downwards given the forecast for interest rates, but it’s impossible to be sure given the uncertainty in the wider world right now.”

Meanwhile, the odds of winning could go in a different direction. Ms Coles explained: “The odds will move from 23,000 to one to 22,000 to one in July, but in the past the odds haven’t always changed when the prize rate changes. NS&I is able to keep the odds steady by changing the mix of different prizes.”

‘Real risk’ for Premium Bonds customers

The expert warned Bond holders that despite any changes, your chances of a big win will probably stay quite low. Ms Coles said: “Of course, these things are both very different to the return you’ll actually receive.

“In an average month, the average bondholder will still win nothing. And because there’s no interest on these accounts, unless you are unusually lucky, there’s a real risk you will lose money after inflation. It means it’s worth thinking carefully whether these Bonds are the right home for your money.”