The government-run National Savings & Investments has announced that it is doubling the number of premium bond jackpot winners, with two £1 million prizes being given away each month.
In addition to this change, the “prize fund rate” which broadly represents an expected “interest” return from premium bonds has been increased from 1.30% to 1.35%.
At first glance this sounds like good news for the most popular savings product in the UK, and you may be preparing the champagne in anticipation of your next win. Unfortunately however, NS&I have also announced that the allocation of prize funds will be 7% to higher value prizes, 5% to medium value and 88% to lower value. This changes from 5%, 4% and 91% respectively.
This change is because the big prize will now be paid out twice as often from the same pool of money.
Consumer rights site Money Saving Expert models the chances of winning monthly based on real payout statistics. The calculator is available here. The results are surprising – the expected “interest” on £40,000 of holdings is only 1.11%, due to the large jackpot payouts. The good news is that the returns are tax-free and you may of course win more (or less!).
Given the low interest rates available on cash, premium bonds do start to look attractive for higher-rate taxpayers who are looking for low-risk ways to save their money and have exhausted their ISA allowances.
