Martin Lewis' Money Saving Expert has issued a warning about a major change coming to Premium Bonds. National Savings and Investments (NS&I) will be reducing the prize-fund rate for Premium Bonds to 4.4% from 4.65% starting with the March 2024 draw. This means that bondholders will have fewer chances to win big money prizes.
What are Premium Bonds?
Premium Bonds are a type of savings account that do not earn interest. Instead, there is an annual prize fund rate that supports a monthly prize draw for tax-free prizes. These prizes range from £25 to £1 million.
Decreased prize-fund rate
The odds of winning the lowest prize of £25 with Premium Bonds are already 21,000/1, according to NS&I. The chances of winning the £1 million jackpot with just one bond in any given month are roughly one in 60 billion. With the decrease in the prize-fund rate, it is now even more likely that regular savings will outperform Premium Bonds due to their guaranteed interest return.
Alternatives for better savings rates
If you are a Premium Bond member and want to explore better savings options, there are two alternatives to consider. The first is easy-access savings, where you can potentially earn more than 5.2% interest. The second option is a one-year fixed savings account, which offers rates of 5.3%.
Paying tax on Premium Bond savings
Despite the decrease in savings rates, the amount of Premium Bond savings required before you start paying tax on them is still relatively low compared to previous years. This is due to the introduction of the personal savings allowance in 2016.
Expert advice on savings
Martin Lewis' Money Saving Expert has also shared valuable advice on getting the best interest rates for your savings and why you should not settle for less. Savers have experienced the highest interest rates in 2023 after years of low returns. The finance expert has also revealed a clever £1 savings trick to help individuals get on the housing ladder without any risk.
For more information on Premium Bonds and how they work, you can read our comprehensive guide here.
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