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Prize pot for Premium Bonds slashed – as NS&I lowers interest rates on two more accounts

The prize pot for government-backed Premium Bonds is being slashed, which may leave some questioning if they are still worth it.

National Savings and Investments (NS&I) also announced they will be lowering the rates paid to their Direct Saver and Income Bonds with effect from next month.

As of 20 November, both accounts will offer 3.75% AER – having paid 4% interest since May 2024.

Meanwhile, it’s the second time this year the NS&I Premium Bond prize rate has been lowered. It will fall from 4.4% to 4.15%.

Premium Bonds differ from a normal savings account because instead of paying interest, this amount is pooled and paid out each month at random in prizes ranging from £25 to £1m.

But the odds of actually winning mean you may not necessarily get a 4.4% return on your investment, even if you put in the maximum amount of £50,000 (in fact, almost everyone wins nothing).

As MoneySavingExpert explained with their Premium Bond Probability Calculator, if 20 people each had £100 invested for a year, for one to win £25+, the remaining 19 would have to win nothing.

What does this mean for savers?

The cut means people with Premium Bonds will fall even further behind those who have their money invested in other types of savings accounts.

As per our latest Savings Guide last week, you could get up to 5.1% interest on a variable rate cash ISA.

For comparison, if you saved £1,000 over the course of a year you would earn £50 in the variable rate cash ISA. You would earn £38 if invested in either the NS&I Direct Saver or Income Bond accounts.

If you invest £1,000 in a Premium Bonds account (and for this, we’ve used MSE’s Premium Bonds Calculator) you have a 56% chance of winning absolutely nothing and a 43.5% chance of winning at least £25. 

Your chances of winning the biggest jackpot, £1m, is one in 5.2 million.