NS&I Premium Bond prize rate slashed as Martin Lewis’ MSE debates ‘is it worth it’

NS&I announced it will be cutting its Premium Bond prize rate to 3.8% from April. This is the second bout of bad news for Premium Bond holders in just a few weeks as the rate was slashed from 4.15% to 4% in January.

This doesn’t affect the odds of your bonds winning, which will stay at 22,000 to one, but instead changes the distribution of prizes. However, Martin Lewis’ Money-Saving Expert blog still noted that the cut will see Premium Bonds lagging even further behind normal savings accounts.

It prompted savers to “consider moving your cash” noting that this latest cut will make it “even easier to beat elsewhere”. Martin Lewis himself has often warned savers around Premium Bonds particularly because these savings vehicles don’t offer any interest.

Interest is the guaranteed return on saving and as long as your interest rate is above the current inflation rate you won’t have to worry about losing out. While Premium Bonds don’t have a guaranteed return, taking this risk comes with a potential £1million reward.

Unless you’re one of the lucky few that win a substantial prize, your savings are losing monetary value over time due to inflation. Currently, in comparison to the prize rate, the top easy access accounts are offering close to 5%.

However, there are still some benefits to Premium Bonds. They are tax-free like ISAs which can be a major help for people with large sums in savings or on higher income tax brackets.

The top cash ISA, however, is currently offering 5.25% interest which still outcompetes the Premium Bonds option. But each person is limited to £20,000 they can put in any ISAs each financial year so if you’ve reached this threshold Premium Bonds could offer a better second option.

The prize rate isn’t the only NS&I figure changing though, as some of the interest rates on its savings products ahead of the financial new year in April. This includes an increase to 3.50% interest rates on Direct ISA accounts.

Direct Saver accounts will see a drop from 3.50% to 3.30% interest rate as of March 5. On the same day, Income Bonds with the NS&I will drop from 3.44% gross interest to 3.26% gross interest. More information on these updates can be found on the NS&I website.