Premium Bond interest to DROPS from 1.8% to 1% in April & new £25 prize

Former_MSE_Wendy

What this is all about

NS&I has announced that the Premium Bond interest is to drop from 1.8% to 1% from its April prize draw (until at least June), making Premium Bonds an even worse buy. While the interest rate is after tax, someone with average luck is unlikely to earn even that much... (see the full Premium Bonds: Are they worth it guide for why).

April also sees the start of the new £25 prize level meaning more people will win small prizes, and the move to one £1 million pound prize instead of two. The new lower prize level will increase the number of people who win each month.

Until the new prize distribution is announced after the April draw, it is impossible to work out the odds. However you can see the current probaility in the Premium Bond Probability Calculator.

Click reply to discuss the changes

NS&Is full press release is below...

NS&I CHANGES ITS PREMIUM BONDS PRIZE STRUCTURE AND VARIABLE RATES ON SAVINGS PRODUCTS

• One of the two £1 million jackpot prizes to be distributed as a wider mix of tax-free prizes and new £25 Premium Bond prize to be introduced
• Premium Bond prize fund rate reduces to 1% and will be held at this level for at least the April, May and June 2009 prize draws - odds of winning to remain unchanged
• This is the first change made to the prize fund rate since the last reduction implemented on 1 December 2008
• Interest rates on variable rate products changed following decreases in base rate

NS&I today announced that from the April prize draw onwards one of the two monthly Premium Bond jackpot prizes of £1 million will be replaced by a wider mix of prizes in the monthly draws, allowing more people to win but still retaining the chance of winning the £1 million jackpot prize. Similarly, a new £25 Premium Bond prize will be introduced and used alongside the existing prizes (ranging from £50 to £1 million). These changes have been introduced because Premium Bond holders say that maintaining the chances of winning tax-free prizes on a regular basis is particularly important to them.

In addition to these changes, NS&I is reducing the Premium Bond prize fund rate from 1.8% to 1%. This rate will be held for at least the April, May and June 2009 draws even if there are further changes to the base rate. This is the first change NS&I has made to the prize fund rate since the last reduction implemented on 1 December last year - since then the Bank of England base rate has fallen from 3.0% to 0.5%. The revised prize fund rate will come into effect from 1 April 2009.

The current odds of each £1 Premium Bond number winning any prize will remain unchanged at 36,000 to 1, so with average luck an investor with £30,000 in Premium Bonds could win 10 tax-free prizes a year.
NS&I is also reducing the interest rates on its other variable rate savings by up to 0.50%, following movements in the Bank of England base rate. The revised interest rates will come into effect from 18 March 2009 - see table below.

Peter Cornish, Director of Customer Offer, NS&I, said: "Premium Bonds are unique and are hugely popular with our customers. Replacing one of the £1 million jackpot prizes with a wider mix of prizes and introducing the new £25 prize category will help us maintain the frequency of tax-free prizes - something that we know is particularly important to Premium Bond holders.

"We always aim to reward as many of our customers as possible from the prize fund available, together with having the right mix of prizes. We continue to pay out hundreds of thousands of tax-free prizes each month and customers also benefit from a 100% guarantee on their investment because we are backed by HM Treasury.

As always, NS&I will communicate all of these changes to customers via a range of outlets, including press advertisements and NS&I's website, as well as putting an updated Premium Bonds prize draw details leaflets in all Post Offices and updated interest rates leaflets in most branches of WH Smith throughout the UK.

nrsql

That makes them more worthwhile probably.
A good change but too late.
I valued them on the 50 and 100 prizes on the assumption that was all I would probably win. In fact I never won a 100 - but often got multiple 50's in a month.
With the reduction of the number of prizes it became less likely to get any return so I cashed most of them in. Now I might reconsider when I do some calculations but I doubt it.

ChuckCash

This is bad news, but not too unexpected considering the 1% interest rates on many of the existing NS&I savings products.

Waiting for the fine details, but i'm guessing that the frequency of the £25 prize would be quite similar to the frequency of the current £50 prize, considering the rate drop from 1.8% to 1%.

I was tempted to dabble, but so long as savings accounts offer much higher returns than the average expected return from these, no thanks... these are only for the lucky

gbjbasdw

The new £25 prize it plain stupid.

The extra administration costs ( postage, stationary etc ) will eat even further into the prize fund.

As it is NS&I seem incapable of sorting prize wins by holder number which means that last month my partner and I received 8 envelopes from them ! Had they used their brains this could have been just 2 envelopes saving the cost of 6 lots of postage plus stationary.

I've pointed this out to them but, since it isn't their own money they are wasting, I doubt that anything will ever be done about it. Just a typical public body with more moeny than sense I fear.

keigcf

As its all done by computers it may be cheaper than having a couple of staff looking at the winners and putting into same envelope. I've only ever had the £50 would love to have more!

alanwsg

Why send out envelopes at all?, this IS the 21st century!
They should pay prizes directly into my bank account and send an Email congratulating me on winning.

Gordon927

It's crazy! There are hardly any major prizes, a new £25 prize coming in, yet still these two top prizes remain unchanged.

Break one of them down to £1000, and there will be a thousand more winners every month. At least until we get a slightly better deal.

6022tivo

alanwsg wrote: »

Why send out envelopes at all?, this IS the 21st century!
They should pay prizes directly into my bank account and send an Email congratulating me on winning.

I did read that they are planning (Very soon) to link your premium bonds with a Bank Sort and account number for winnings to be paid via BACS.

***xyz***

Gordon927 wrote: »

It's crazy! There are hardly any major prizes, a new £25 prize coming in, yet still these two top prizes remain unchanged.

Break one of them down to £1000, and there will be a thousand more winners every month. At least until we get a slightly better deal.

They are getting rid of one of the 1 million prizes to make into smaller prizes.

diadeb

I now reinvest my winnings and so my envelope contains an actual bond each time. Having just checked my last years winnings, I have won a prize for 10 out of the last 12 months, based on a large but not the maximum investment, and my rate of return is just over 3% tax free. We need the tax free shelter, so cannot really compare this with ordinary savings accounts. I am more than happy with that although I know this may well go down.

I had the bulk of my savings with Intelligent Finance, which for many years provided reasonable interest rates that meant I didn't need to shop around. On checking recently, my ISA rate was a miserly 1.1% and my savings account a paltry 0.9%. So when faced with figures like this, the premium bonds seem like a no brainer with the tantalising hope of a big win always there!:j

lilac_lady

Unless you have a lot of money in Premium Bonds, it's just a way of keeping money safe (?) instead of banking it. Any win is a bonus. With interest rates being so low and the bad banking publicity probably more people willinvest in them.