You may want to rethink your savings plans
Premium Bonds holders have been told that uncertain times are on the horizon for the popular savings product. This warning follows provider NS&I recently setting out major changes to the monthly prize draw.
NS&I has informed savers that it will raise the prize fund rate from the July draw, climbing from the present 3.3 per cent to 3.8 per cent. The chances of winning for each £1 Bond will also improve, rising from 23,000 to one to 22,000 to one. This welcome reversal of fortune arrives shortly after NS&I slashed the rate, dropping from 3.6 per cent to 3.3 per cent, from the April draw. The odds of winning were also reduced then, from 22,000 to one to 23,000 to one.
There were three reductions to the prize fund rate in 2025. Jennifer Crichton, senior wealth planner at wealth management group Killik & Co, pointed out that the reality is the rules can shift as the broader savings landscape evolves.
‘Expect fluctuations’
She explained: “The prize fund rate for Premium Bonds is variable and broadly tracks the Bank of England rate, so as interest rates have come down, the effective rate on offer has followed, and savers should expect fluctuations. Savers who rely heavily on Premium Bonds as a primary savings vehicle shouldn’t assume prize fund rates will remain the same, and building a broader savings plan is a sensible approach.”
The financial expert urged savers reconsidering their strategy to adopt a “three-pot framework” method for their savings. This describes three distinct categories of savings that you ought to consider.
Ms Crichton explained: “The first pot is an emergency fund. This typically covers three to six months of essential outgoings, sometimes more, and is held in cash for more immediate access.
“Premium Bonds can sit in this pot, as they’re Government-backed and can be accessed upon request. The second pot covers near-term goals, money that likely needs accessing within the next three to five years for foreseeable costs, e.g. larger payments or planned purchases.”
‘More predictable’
For these medium-term objectives, she advised looking at the highest-paying fixed-term savings accounts or cash ISAs, ensuring you receive “more predictable interest” than Premium Bonds can offer.
It’s worth noting that NS&I can change their terms at any time, meaning your likelihood of winning can move around, plus you could go months or even years without a single prize. The financial expert went on to outline the third and final pot to consider.
She said: “The third savings pot is for the long term, so money that you do not expect to need for at least 5 years. Investing is likely to be the best option to grow this pot and protect from the effects of inflation.
“Stocks and Shares ISAs are a very tax-efficient option for this third pot, benefitting from tax-free growth and withdrawals. However, all investing comes with risks. Keeping those three pots distinct is important to ensure long-term savings can work harder for longer, while Premium Bonds remain a liquid, low-risk aspect of an overall savings plan.”
