PREMIUM BONDS SAVERS URGED TO KEEP AN EYE ON TWO KEY FIGURES OR 'YOU'LL LOSE OUT'

Premium Bonds savers have been urged to compare two key figures or they could unknowingly be losing out on the value of their savings.

Customers may have been asking if the savings scheme is right for them after the prize fund rate fell from the April draw, down from 4% to 3.8%.

Personal finance expert Amy Knight, from NerdWallet UK, urged Bond holders to compare the rate with another key number when trying to decide whether or not to cash in their Bonds and try another savings option.

She said: "The time to think about cashing in your Premium Bonds would be if NS&I's rate falls below inflation, as this would mean your money is losing spending power.

"Currently, the Premium Bonds rate is 3.8%. The latest CPI data came out at 3.5%, so on average, Premium Bond winnings will grow holders' cash faster enough to stay ahead of price rises."

However, savers should note that the prize fund rate is simply the average yearly payout amount for Premium Bonds prizes, relative to the total amount in Bonds that goes into each draw. So with the current 3.8% rate, for every £100 in Bonds entered into the draw, £3.80 in prizes is paid out on average.

The reality is you can go months or even years without winning any prizes, in which case your holdings will be losing their value due to inflation and rising prices.

The odds of each £1 Bond winning a prize are currently 22,000 to one. The vast majority of the prizes in each draw are for low amounts such as £25, so even if you win a few prizes over the course of a year, it may not be enough to outpace inflation.

Ms Knight pointed to another scenario where you may want to trade move away from Premium Bonds: "Another moment to consider cashing in Premium Bonds is when you have a specific savings goal in mind with a set time horizon, such as saving for an extension or a new car next year.

"A fixed-term or high-interest notice account could return you guaranteed interest, rather than keeping your fingers crossed for a Premium Bond prize, which may never come."

She suggested one alternative account to look at with Moneybox' 95-day notice account, which currently pays 4.55%, meaning if you moved over £10,000 in Bonds into this account, you would earn £455 in 12 months.

Savers looking at these numbers may still be tempted to stick with their Bonds given the chance of a big win, with large prizes such as £50,000, £100,000 in the prize pot each month, or even the £1million jackpot.

Ms Knight said: "There's always a chance that you could miss out on a much bigger Premium Bond prize, but for key financial milestones, having certainty is sometimes more important to people."

Bond holders may wonder if there is a particular time in the year when it's best to look at cashing in your Bonds, and Ms Knight said it may be worth putting a note on your calendar depending on your tax situation.

She explained: "If you are a basic rate taxpayer, you can earn £1,000 in interest before it becomes taxable. As we're still early in the 2025-26 tax year, you could consider withdrawing some of your Premium Bonds now and putting the money in a fixed-rate savings account where returns are guaranteed.

"Locking this in now before the base rate drops again could help you grow your savings pot faster than the 3.8% average return on Premium Bonds. Once you hit the Personal Savings Allowance (which is only £500 for higher-rate taxpayers), making regular contributions into Premium Bonds or an ISA keeps any further gains out of the taxman's reach."

She said it's also a good idea to review your savings portfolio towards the end of the tax year, approaching the April 5 deadline. You may want to consider both you Premium Bonds as well as any ISAs and savings accounts you have, to maximise your interest earnings while avoiding a HMRC bill.

Ms Knight explained the key principles here: "The strategy that works best for you will depend on what you've earned this tax year and what you expect to earn in the year ahead. An independent financial advisor can give you a personalised plan on how to maximise your tax-free allowances."

Asked if NS&I could drop the prize fund rate again this year, the finance expert pointed out that this could be on the cards, given the Bank of England may well drop the base interest rate again.

The central bank moved down the base rate from 4.5% to 4.25% in May, with many savings providers dropping their rates as a result.

Ms Knight said: "NS&I hasn't yet announced any further changes to Premium Bonds yet, but it's no secret that the prize fund rate is variable.

"Another interest rate cut at the June MPC meeting could put pressure on NS&I to scale back rates or alter the odds of winning, which stand at 1 in 22,000.

"If the Premium Bond rate dropped from 3.8% to 3.6%, a saver with £10,000 could expect to win one less £25 prize per year."

2025-06-04T10:28:58Z