National Savings & Investments (NS&I) has announced it will lower the prize rate for premium bonds from 4.65% to 4.40% tax free from 1 March. The odds of winning will remain unaltered at 1 in 21,000.

The premium bond prize rate was increased last September (please see our earlier Bulletin), when the chances of winning were marginally improved, as well as the average prize. Those changes were announced shortly after the Bank (Base) Rate was lifted by the Bank of England to its current level of 5.25%. The March nudge downwards could therefore be seen as pre-empting the likely next move by the Bank, although at present few commentators see a cut arriving as early as March.

The pattern of March’s prize distribution is detailed below along with the current distribution for comparison. The most notable feature is that there will be many more £25 prizes and correspondingly fewer larger prizes.

Comment

The prize rate remains higher than on offer from any other variable rate NS&I product, reflecting the importance of premium bonds to NS&I in meeting its funding target. Given that the top instant access rates are around 5.2%, the bonds still look attractive for anyone who pays tax on interest.

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