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NS&I reduces Premium Bond return rate to 4% in interest rate adjustment

Interest Rates on NS&I Premium Bonds dropping from 4.15% to 4% in January, along with cuts to other savings account rates. Is the investment in Premium Bonds still financially beneficial?

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Reduced Premium Bond Prize Fund Rate: Now at 4% by NS&I
Reduced Premium Bond Prize Fund Rate: Now at 4% by NS&I

NS&I reduces Premium Bond return rate to 4% in interest rate adjustment

In the world of savings, NS&I Premium Bonds continue to be a popular choice for many, offering the allure of tax-free prizes and the thrill of potential wins. However, recent changes to the prize fund rate and the distribution of prizes have left some holders questioning if the account remains right for them.

Starting with the August 2025 draw, the prize fund rate was reduced from 3.8% to 3.6%, marking the second reduction in 2025 following an earlier cut from 4.0% to 3.8% in April [1][2][4]. Despite this decrease, the odds of winning a prize remain unchanged at 22,000 to 1 per £1 bond [3][4].

For the August 2025 draw, over 6 million prizes worth approximately £396 million are being distributed to more than 132 billion eligible bond numbers. The prize breakdown includes two £1 million jackpots, 75 prizes of £100,000, 151 prizes of £50,000, and thousands of smaller prizes down to £25 [3]. While the overall prize money pool is smaller due to the lower prize fund rate, the structure still includes two monthly millionaire winners [4].

Looking ahead, no specific announcements have been made about further cuts yet. However, given the recent pattern and NS&I’s need to balance government financing, further adjustments to the prize fund rate (and thus prize values) could happen based on economic conditions and funding targets.

The quantity of other prizes (bar the £1 million jackpot) will decrease in the January 2025 Premium Bond draw. The number of £100,000 Premium Bond prizes will decrease from 89 to 82, while the number of £25 prizes will actually increase [1]. Some holders may not win any prizes, but the odds of winning remain the same.

In comparison, the top one-year savings bond currently pays 4.76%, and the average expected return on Premium Bonds is lower than the top easy-access account, which currently pays 5% [1]. This makes the top easy-access account a more attractive option for savers seeking a guaranteed return.

In light of these changes, investment platform AJ Bell suggests that savers with money in Premium Bonds should consider whether the account is right for them. Factors such as having used up ISA allowance, facing tax on interest earned, and enjoyment of tax-free prizes and the thrill of potential wins come into play [3].

In conclusion, while the prize fund rate has been reduced, the odds of winning a prize remain the same, and the chance to win big prizes, including the jackpot of £1 million twice monthly, still exists [1][3][4]. The prize distribution slightly favors more smaller prizes relative to high-value ones due to the lower prize fund rate [4]. As always, it's essential for savers to evaluate their financial goals and make informed decisions about where to invest their money.

[1] BBC News. (2025, August 1). NS&I Premium Bonds: Lower prize fund rate and odds remain the same. Retrieved from https://www.bbc.co.uk/news/business-59798476

[2] NS&I. (2025, April 1). NS&I Premium Bonds: Prize fund rate reduced to 3.8%. Retrieved from https://www.nsandi.com/news/premium-bonds-prize-fund-rate-reduced-38

[3] AJ Bell. (2025, August 1). AJ Bell urges Premium Bond holders to consider whether the account is right for them. Retrieved from https://www.ajbell.co.uk/news/aj-bell-urges-premium-bond-holders-to-consider-whether-the-account-is-right-for-them

[4] NS&I. (2025, August 1). NS&I Premium Bonds: Prize fund rate reduced to 3.6%. Retrieved from https://www.nsandi.com/news/premium-bonds-prize-fund-rate-reduced-to-36

  1. Given the current economic conditions and the need for NS&I to balance government financing, future adjustments to the prize fund rate and prize values of Premium Bonds, such as the recent reductions, may occur in the industry of finance and banking-and-insurance.
  2. For some individuals in the world of personal finance, the lower returns and potential tax on interest earned from Premium Bonds might make the top easy-access account a more attractive option, offering a guaranteed return and a higher expected return compared to the average Premium Bonds.
  3. Investment experts like AJ Bell advocate for savers to assess their financial goals and consider if Premium Bonds remain right for them, taking into account factors such as the exhaustion of ISA allowance, the enjoyment of tax-free prizes, and personal preferences in terms of risk and return.
  4. While it's crucial for savers to be aware that the overall prize money pool in Premium Bonds has decreased due to adjusted prize fund rates, the allure of potential tax-free prizes, including the jackpot of £1 million twice monthly, continues to set NS&I Premium Bonds apart from many other options in the personal-finance industry.

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