National Savings and Investments (NS&I), the government-owned savings bank, has announced that it will be reducing the Premium Bond prize fund by an estimated £25m for the December 2024 draw, cutting the notional prize fund rate from 4.40% to 4.15%.
The rate of return on Premium Bonds is often referred to as a 'prize fund rate' or 'notional interest rate' because Premium Bonds do not pay interest in the same way as other types of savings products provided by banks and building societies. Instead, Premium Bonds work like a lottery, with each bond giving the owner a chance to win one of a number of monthly prizes between £25 and £1 million.
Premium Bonds cost £1 each but must be purchased in bundles of at least 25. The notional interest rate is worked out by dividing the total number of Premium Bonds purchased by the total prize fund.
The notional interest rate has remained at 4.40% since March 2024 and the latest move to cut the prize fund is in response to a 'changing savings market', according to NS&I. You can read more about Premium Bonds and how they work in our article 'What are Premium Bonds and are they worth it?'
What are the odds of winning a Premium Bonds prize?
The total prize pool currently stands at around £461m per month with almost 6 million winning prizes up for grabs. The cut means that the prize fund from December 2024 will reduce to around £436m per month, with around 5.7 million prizes up for grabs.
Source: https://www.nsandi.com
The reduced prize fund for December means there are roughly 265,000 fewer prizes on offer, so the chances of winning a prize have reduced, with the odds increasing from 21,000 to 22,000 to 1.
Source: https://www.nsandi.com
Ultimately, the more Premium Bonds you hold, the more times you will be entered into the draw and the more chances you will have to win a prize.
NS&I cuts rates on savings products
In addition to the reduction of the prize fund for its Premium Bonds, NS&I has made a number of other rate cuts, which we have summarised below.
British Savings Bonds
- New issues of its 2-year Guaranteed Growth Bond now attract a rate of 4.10% gross/AER, down from 4.25% gross/AER.
- In addition, new issues of its 2-year Guaranteed Income Bond now attract a rate of 4.02% gross/AER, down from 4.17% gross/AER.
Variable rate savings products
- From 20th November 2024, the NS&I direct saver rate will reduce from 4.00% gross/AER to 3.75% gross/AER.
- In addition, from 20th November 2024, NS&I Income Bonds will reduce from 3.93% gross/AER to 3.69% gross/AER.
How to get a guaranteed savings rate
Premium Bonds do not offer a guaranteed rate of return, meaning Premium Bond holders that do not win a prize could see their savings eroded by inflation over time. Savings products such as fixed-rate bonds provide a fixed rate of return in exchange for locking money away, usually for 1, 2, 3 or 5 years and these can be good for those who are worried about the impact of inflation. Those requiring access to their savings could consider an easy-access savings account. Check out the best rates in our regularly updated article, 'Best Savings Accounts in the UK'.
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