Government-owned savings bank National Savings and Investments (NS&I) has increased the Premium Bond prize fund by a total of £39m, meaning it now pays a notional interest rate of 3.7% (up from 3.3%).
Premium Bonds do not pay interest in the same way as other types of savings products. Instead, each bond purchased provides the investor with a prize draw ticket and a chance to win one of a number of monthly prizes. The bonds cost £1 each, but can only be purchased in bundles of at least 25. The number of Premium Bond ticket holders combined with the total prize fund is then used to work out the average rate of return. July's prize pool will ensure over 1.5 million Premium Bond holders will win the smallest prize of £25, while two lucky winners will win the top prize of £1m. The available prizes rise in increments from £25 up to the maximum £1m. The latest prize fund boost is the 4th this year, increasing the notional interest rate to 3.7%, the highest it has been for 15 years.
While a higher rate is good news for Premium Bond holders, most people will not achieve that rate of return. The notional rate is based on an average. The majority will not win a prize at all and those that do are more likely to win one of the smaller prizes. Additionally, while the prize fund has been boosted, NS&I has taken the decision to reduce the number of £25 prizes, opting to boost the total number of higher prize values, while the total number of £1m jackpot winners remains at two. You can read more about Premium Bonds in our article 'What are Premium Bonds and are they worth it?'
What are the odds of winning a prize with Premium Bonds?
The total prize pool has been boosted to a little over £374m per month with just over 5 million winning prizes. The odds of winning any given prize currently stands at 24,000 to 1. To provide some context, the odds of winning the top prize of £1m currently stands at over 50 billion to 1.
The more bonds you hold, the more times you will be entered into the draw and the more chances you will have to win a prize.
How to get a guaranteed savings rate
Premium Bonds do not guarantee a rate of return, meaning investors could see their savings eroded by inflation over time. Those looking for a guaranteed rate of return should consider alternative savings products such as fixed-rate bonds which provide a fixed interest rate in return for locking their money away, usually for 1, 2, 3 or 5 years. Those that require access to savings may want to consider an easy-access savings account, check out the best rates in our article 'Best Savings Accounts in the UK'.
