NS&I to increase Premium Bond prize rate to 4.65% – here's all you need to know
NS&I will increase its Premium Bond prize-fund rate to 4.65% from 4% for its September 2023 draw and beyond, with an extra £66 million in prizes up for grabs. This latest increase – the eighth we've seen in just over a year – is to the highest rate since March 1999. The odds of winning will also increase from 22,000 to one to 21,000 to one.
There will still only be two monthly winners of the top £1 million prize, but the estimated number of prizes available in almost all other categories will rise. NS&I says approximately 269,000 extra prizes will be up for grabs, with the lower-value prizes seeing the biggest shake up – the number of £50 and £100 prizes are both estimated to rise by over 465,000, while the number of £25 prizes is estimated to fall by over 670,000.
While the rise is good news, the 4.65% Premium Bond prize-fund rate is still behind today's top easy-access savings rate of 5%. And most people with typical luck won't actually get a return of 4.65%, even with the maximum £50,000 invested. The reason behind this is quite complex – see below, as well as our Premium Bonds guide for a full explanation.
Plus, the rate is quite a bit lower than the top short-term fixed rates – the top six-month fix currently pays 5.5% and the top one-year fix pays 6.02%. See our Top savings guide for more.
There will be more prizes available, but your odds of winning are still quite low
Premium Bonds are essentially a savings account you can put money into, where instead of being paid interest, tax-free prizes are awarded in a monthly draw. Prizes range from £25 to £1 million.
The nearest thing Premium Bonds have to an interest rate is their annual prize rate, which is what's increasing from 4% in August to 4.65% in September. It's a benchmark of the "average" return you'll get for your money – though in reality, there's no guarantee you'll win anything at all.
What it really means is that for every £100 invested in Premium Bonds, £4 (soon to be £4.65 from 1 September) is paid out every year in prizes. But as the prizes include two £1 million pay-outs and other big prizes, many also win far less – even with the rate increasing.
Below is a breakdown of how the number of prizes awarded is estimated to change from September 2023:
Even with the rate increase, Premium Bonds are likely to be beaten elsewhere
For most savers with average luck, and who don't pay tax on savings interest, normal savings are still likely to beat Premium Bonds. This is because savings give you a guaranteed return in the form of interest – so if you get the top easy-access rate of 5%, you'd get roughly £50 in interest for every £1,000 saved.
Though this interest rate can go up and down over time, you know exactly what you'll earn at any given point – so it still provides more certainty than Premium Bonds, where many saving the same £1,000 would win nothing.
Many people often think "I'm likely to get the prize rate (or thereabouts) – and there's a small chance of winning a million". But the main point is that this isn't correct. You're actually likely to get quite a lot less than the prize rate of 4% or 4.65%, and there's a negligible chance of winning a million.
If you know and you're OK with this, then investing in Premium Bonds isn't a bad plan. For full info, see our Premium Bonds guide.
Premium Bond prizes are tax-free – though cash ISAs will likely win for most
With the increase in savings rates we've seen in the past year, you now need far less in savings before you starting paying tax on the interest. With today's top easy-access rate of 5%, it now takes £20,000 in savings for basic-rate taxpayers to exceed the personal savings allowance and start paying tax on the interest (£10,000 for higher-rate taxpayers). So the fact that Premium Bond prize winnings are tax-free is a boon for some.
Yet tax-free cash ISAs will still likely be the better choice for many. The top easy-access cash ISA rate is currently 4.43% – a smidge lower than the Premium Bond prize-fund rate from September – but here you get a guaranteed return on your savings. So if you've enough in savings to exceed your personal savings allowance (or you will soon), cash ISAs will likely beat both normal savings and Premium Bonds.
There is one group who may still benefit from Premium Bonds, however. If you've large savings and you've maxed out your £20,000-a-year ISA allowance, and you've enough savings leftover to exceed your personal savings allowance in normal savings, Premium Bonds could give you a better return (if you're lucky).
You can buy Premium Bonds online
If they're right for you, the minimum amount you can buy is £25 for one-off purchases and monthly standing orders, while the maximum amount you can hold is £50,000 – you can do this on NS&I's website.
Prizes are always tax-free (they're also backed by the Government, meaning your money's fully protected – though savings held with any UK-regulated institution are also protected up to £85,000). For more info on how Premium Bonds work – and whether they're worth it – see our Premium Bonds guide.