Savers to lose out as Premium Bond prizes are slashed

The changes by NS&I, blamed on reductions in interest rates across the savings market after the slashing of the base rate to 0.25%, will apply to Premium Bonds, as well as NS&I's Direct ISA, the Direct Saver and Income Bonds.

Premium Bonds are effectively a savings account you can put money into, where instead of savers earning interest, tax-free prizes are awarded in a monthly prize draw.

The prizes on offer range from £25 to £1 million, but as of 1 May the estimated number of Premium Bonds prizes will fall, from 2,224,513 in February to 2,219,493. The total value of prizes will also drop, from £69,516,050 this month to an estimated £63,810,400 in May.

Check out our guide for full info on how Premium Bonds work.

How will the Premium Bond changes affect me?

Below is a table of the typical current distribution of prizes and how that distibution will change as of 1 May:

Premium Bond Changes

It's worth bearing in mind that the nearest thing Premium Bonds have to an interest rate is their annual prize rate, which is currently 1.25%. The announcement from NS&I means that the Premium Bond interest rate will drop to 1.15% from 1 May, though this describes the "average" payout and is just a vague watermark.

'Savers will be disappointed, but new rates present a fair offer'

Steve Owen, acting chief executive of NS&I, says: "The new rates reflect current market conditions and allow us to continue to strike a balance between the needs of our savers, taxpayers and the stability of the broader financial services sector.

"We appreciate that savers will be disappointed, but we believe that the new rates present a fair offer to customers, who will continue to benefit from our 100% HM Treasury guarantee on all holdings, as well as tax-free prizes for Premium Bonds."

How will other NS&I products be affected?

The changes, expected to impact about 21 million customers in total, will also see a 1% rate on NS&I's Direct ISA fall to 0.75%, a 0.8% rate on its Direct Saver drop to 0.7%, and a 1% rate on Income Bonds decrease to 0.75%.

Additional reporting by the Press Association.