What does the NSandI's reduction in the prize fund rate for Premium Bonds mean for savers?

Following the cut, NS&I will distribute less money in the Premium Bonds prize draw

According to NS&I, the Premium Bonds prize fund rate will be lowered, which will result in fewer big prizes being awarded.

In August, the prize fund rate will drop from 3point 8 percent to 3point 6 percent, a 20 basis point cut.

At 22,000 to 1 for every 1 bond, the odds of winning will stay the same, but average-luck savers can anticipate lower returns.

The estimated total number of prizes in August will be 6,011,195, which is slightly more than the 5,974,465 prizes awarded in the most recent June Premium Bonds prize draw.

There will be more of the smallest payouts25up for grabs, but fewer high-value prizes will be awarded.

Agent Million will continue to visit two fortunate Premium Bonds winners each month, maintaining the monthly total of overnight millionaires created.

Below is a table that compares the quantity and total value of prizes awarded in June to the anticipated amounts in August.

NS&I is the source.

Since September 2023, when it reached a recent peak of 4.65 percent, the impending change will be the fifth cut.

In April 2025, the rate for the prize fund was lowered to 3 %.

The cut "will be disappointing for savers" because it reduces their chances of winning a prize larger than the minimum of £25, according to Greig Bingham, head of financial modeling at Broadstone.

"People will have to work harder to put their money to work and earn attractive returns as interest rates fall," he continued.

The cut "reflects the changing landscape for savings," according to Andrew Westhead, director of NS&I retail.

He went on to say: "We can continue to balance the interests of taxpayers, savers, and the stability of the larger financial services industry by making this adjustment now.

What is the rate for the Premium Bonds prize fund?

To decide how many prizes and what size they should be awarded each month, the NS&I uses the Premium Bonds prize fund rate as a benchmark.

In August, the new 3 percent will be the average rate of return for a person with average luck who invests cash in Premium Bonds.

Although the prize fund rate will drop to 3 to 6 percent, you are not assured of reaching that rate of return on an annual basis. Some investors will earn higher returns each year, while many will receive lower returns.

Do premium bonds make sense today?

Whether holding Premium Bonds is the best way to increase your savings will be questioned in light of the prize fund rate cut.

Along with the novelty of the monthly prize draw, Premium Bonds offer the unique appeal of not having to pay taxes on your winnings. However, by placing your money in the best savings accounts for high interest rates, you may see better growth.

For instance, Plum offers the best cash ISA available at the moment, with an interest rate of 4point 85 percent. Because the savings account is an ISA, savers who have not yet spent their 20,000 ISA allowance will not be required to pay taxes on the interest they receive.

Chase currently offers the best regular savings account available, with a 5 percent payout. It outperforms the prize fund rate offered by NS&I, but the interest is taxable. It's possible that tax-free savings allowances will help savers.

63% of all Premium Bond savers have never received a single prize from their bonds, according to a recent Freedom of Information request made by Dodl, AJ Bell's investing app.

Additionally, there was a notable difference between those who have a large portion of their money invested in Premium Bonds and those who have a smaller portion.

While the average holding for all holders was 5,406, the average holding for Premium Bonds winners was 23,397.

The prize fund rate was cut again, so savers might want to look around and see if they can put their money in other savings accounts to see if they can get more out of it.