NS&I to increase premium bonds prize fund rate | moneyfacts.co.uk

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Michael Brown

Content Writer
Published: 24/05/2022

The latest increase means premium bond holders have the chance to win a further 1.4 million tax-free prizes each month.

National Savings & Investments (NS&I) will increase the rate on its premium bonds from 1.00% to 1.40% from next month. This means premium bond holders will benefit from a further 1.4 million tax-free prizes worth a collective £40 million each month.  

“I’m delighted to see NS&I raise the prize fund rate on Premium Bonds, which will see an additional 1.4 million prizes worth £40 million being returned to savers each month – helping to put money in the pockets of the nation’s savers,” said John Glen, Economic Secretary to the Treasury.

For each £1 Premium Bond number, the odds of winning a Premium Bond prize will change from 32,500 to one to 24,500 to one.

While the Government-owned savings bank will not increase the two £1 million jackpot prizes each month, it will increase the number of £100,000 prizes from six to 10. 

The number of all other cash prizes will also increase, with the number of minimum £25 cash prizes increasing from just over 3.4 million to over 4.7 million.

 

Number and value of Premium Bonds prizes

Value of prizes in May 2022

Number of prizes in May 2022

Value of prizes in June 2022 (estimated)

Number of prizes in June 2022 (estimated)

£1,000,000

2

£1,000,000

2

£100,000

6

£100,000

10

£50,000

11

£50,000

19

£25,000

24

£25,000

40

£10,000

58

£10,000

98

£5,000

116

£5,000

196

£1,000

1,963

£1,000

2,764

£500

5,889

£500

8,292

£100

31,907

£100

37,922

£50

31,907

£50

37,922

£25

3,343,185

£25

4,748,097

Total:

£98,183,175

Total

3,415,068

Total

£138,210,725

Total

4,835,362

How do premium bonds work?

In essence, NS&I pays a rate of interest on a collective pot of money financed by the premium bond owners. At the time of writing this rate is 1%, but will increase to 1.40% from June.

However, instead of paying out this interest proportionately to its bond holders, it divides these funds up as tax-free cash prizes. These prizes differ in value from £25 to £1 million and are allocated to bond holders at random.

Each £1 you invest into these bonds will count as a separate entry for a cash prize, therefore the more you invest the greater chance you have of winning a cash prize.

For a more detailed comparison of how these bonds compare against traditional savings accounts, read our guide.

Premium bonds and inflation

Investors are advised against purchasing premium bonds to hedge their money against inflation.

This is because the only returns you can make through this form of investment is through the tax-free cash prizes. These returns, therefore, are not guaranteed and, with inflation at 9%, investors run the risk of their cash devaluing over time.

How does this investment compare against an easy access account?

Suppose you invest the maximum of £50,000 into premium bonds to give yourself the best chance of winning a cash prize. As explained, the returns you could gain could be nothing or something between £25 and £1 million.

If this money was put into today’s top-paying easy access account instead, at a rate of 1.50%, then the investor will be guaranteed an interest payout of £750. Other theoretical examples can be worked out using our calculator.

A premium bond holder can cash in their investment and receive their money within three working days. In comparison, some easy access accounts can pay out your funds instantly.

Therefore, for those looking for more security in their payments, an easy access account can look attractive. Otherwise, investors looking for more risk, and possibly with other money hedged elsewhere, might find premium bonds an enjoyable way to save.

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