Major update on Premium Bonds as winning odds and prize fund are both set to change

The chances of winning on P are set to decrease in the December draw, with NS&I announcing a cut to certain savings rates as it adjusts to a "changing savings market".

The state-owned savings bank relayed that the odds for Premium Bonds wins will shift from 21,000 to one, to a slimmer 22,000 to one. There will still be an estimated two prizes of £1m in the December draw, the same as in October, but in total there will be an estimated 5,726,438 prizes worth £435,686,300 in December, down from 5,991,306 prizes worth £461,330,525 this month.

READ MORE:

The Premium Bonds prize fund rate will fall to 4.15% in December, from the current 4.40%. In a move not seen since November 2020, NS&I is also slicing interest rates for Direct Saver and Income Bonds.

Come November 20, these accounts will accrue interest at a new variable rate of 3.75% AER (annual equivalent rate), marking a decrease from the existing 4.00%. Additionally, investors will encounter revised rates on newly issued two-year British Savings Bonds, now advertised with a 4.10% AER for the Guaranteed Growth Bond and a 4.09% AER for the Guaranteed Income option - both experiencing a slight rate reduction from the earlier 4.25%.

The Bank of England base rate was recently cut and further reductions are expected to follow. NS&I, which is backed by the Treasury, has a duty to balance the needs of savers, taxpayers and the wider financial market.

Andrew Westhead, NS&I retail director, said: "As the savings market continues to change, we need to lower the rates on some of our products to help us meet our net financing target, while also ensuring we continue to balance the interests of our savers, taxpayers and the broader financial services sector."

He added: "Even with the changes, we’re still expecting to pay out over 5.7 million prizes worth over £435 million in the December Premium Bonds draw."

He concluded by saying: "Our portfolio of both fixed and variable rate products, plus the unique position of Premium Bonds, continues to give savers the choices they need to help reach their savings goals, backed by the safety and security of our 100% HM Treasury guarantee."

Sarah Coles, head of personal finance at Hargreaves Lansdown, commented: "The prize rate has finally been hit with the business end of the savings rate scythe, as NS&I has followed the rest of the easy access savings market by cutting the chances of a win."

She continued: "This was always going to happen eventually. NS&I has a duty not to overpay for the money it raises for the Treasury, which means the prize rate needs to be middle of the pack within the easy access savings market."

She finished by noting: "After the Bank of England rate cut, these have been heading downhill, albeit impressively slowly. Moneyfacts figures show the average easy access account is currently offering 3.04% – compared to 3.13% two months ago, and Premium Bonds have finally succumbed."

"Of course, the prize rate doesn’t reflect what you’ll make in these bonds, and because of the lumpy way that prizes are awarded, the average person with £1,000 in bonds will still win nothing in the average month."

"The lengthening of the odds of a win should be food for thought for anyone who is holding money in these accounts and losing money after inflation."

When discussing the slashed rates on the fresh British Savings Bonds, Ms Coles said: "You can do far better elsewhere, with the best on the market offering 4.6%."

She also mentioned: "And while the Treasury guarantee of your savings and the attraction of the brand will go a long way, for plenty of people it’s not going to makeup enough ground. These bonds look unlikely to shake or stir anyone."