Biggest increase to Premium Bond prize rate for 40 years

The Premium Bond prize rate will increase from 1.4pc to 2.2pc next month – the biggest rate rise since 1980.

National Savings & Investments said the increase would boost the overall size of the prize pot by £76m and will mean almost 100,000 more prizes are given out next month.

The last time NS&I announced an increase as big was in July 1980, when it changed the prize fund rate to 7pc from 5.75pc, an increase of 1.25 percentage points.

Premium Bonds are Britain’s biggest savings scheme, with over 22 million holders, and offer prizes of between £25 and £1m a month. This is the first time returns have passed 2pc since November 2008, during the financial crisis, when the rate was 2.85pc.

The latest rate change was in June 2022, when it increased from 1pc to 1.4pc – boosting the odds from 34,500 to 1 to 24,500 to 1. From next month, the odds will shorten further to 24,000 to 1.

NS&I’s Ian Ackerley said: “This is the second increase to the Premium Bonds prize fund rate that we have made in less than six months. These changes have helped us ensure that Premium Bonds remain attractive, while also ensuring that we continue to balance the interests of savers, taxpayers and the broader financial services sector.”

However, experts warned the prize fund rate is based on the holder’s chance of winning a prize, so some savers could earn less than 2.2pc. Rachel Springall, of financial analyst Moneyfacts, said: “Savers may not win anything at all and instead, could have had their money in a savings account earning interest.”

Sarah Coles of stockbroker Hargreaves Lansdown said: “At a time of high inflation, you’ll also pay a higher price, because unless you have above-average luck, you’ll be losing far more of the spending power of your savings by leaving them in Premium Bonds.”

Just one easy-access savings account offers a higher return than Premium Bonds. The Yorkshire Building Society Rainy Day account pays 2.5pc to savers, but only on balances up to £5,000. Savers are also limited to two withdrawals per year.