Ns&i Premium Bonds Rate Change: Prize-Fund Cut to 3.3% From April — Are They Still Worth It?

The ns&i premium bonds rate change will see the annual prize-fund rate trimmed to 3. 3% from 3. 6% for the April draw and beyond, and the odds of a single bond winning a prize fall slightly. This move tightens the gap between Premium Bonds and conventional savings accounts and raises fresh questions about who should keep money in bonds versus switching to interest-paying accounts.

Ns&i Premium Bonds Rate Change: the numbers and recent trajectory

NS&I will reduce the Premium Bond prize-fund rate to 3. 3% from 3. 6% for the April draw and beyond. The odds of any single bond winning a prize, which have been the same since December 2024, are dropping from 1 in 22, 000 to 1 in 23, 000. This latest cut follows a series of reductions last year that took the prize-fund rate from 4% in January to 3. 6% by August.

How the prize-fund rate compares with standard savings

The prize-fund rate already lagged behind interest rates on standard savings, and with the cut to 3. 3% that gap widens. For example, today's top standard (non-ISA) easy-access rate of 4. 5% would pay £45 in interest a year for every £1, 000 saved. That guaranteed return makes it more likely that typical savers with average luck would earn more from interest-paying accounts than from Premium Bonds.

Odds, prizes and how returns actually play out

Premium Bonds operate as a monthly draw where tax-free prizes are awarded instead of paying interest, with prizes ranging from £25 to £1 million. The nearest thing they have to an interest rate is the annual prize-fund rate, which is being reduced from 3. 6% to 3. 3% in April. Crucially, most people with typical luck won't get a return of 3. 6% (or 3. 3%), even with the maximum £50, 000 invested; the reason for the disparity between the headline prize-fund rate and typical individual outcomes is complex.

Tax treatment and thresholds that affect the choice

Normal savings interest is paid tax-free at source but is taxable as income. Each tax year there is a personal savings allowance (PSA): basic 20% rate taxpayers don't pay tax on the first £1, 000 a year of interest; higher 40% rate taxpayers don't pay tax on the first £500 a year of interest; top 45% rate taxpayers pay tax on all interest. With the current top standard non-ISA easy-access rate of 4. 5%, it takes just over £22, 222 in savings for basic-rate taxpayers to exceed the allowance and start paying tax on the interest, and just over £11, 111 for higher-rate taxpayers. Premium Bond prizes aren't taxed.

Who might still favour Premium Bonds after the cut

Premium Bonds may still be a reasonable option for savers with larger cash holdings who have already maxed out the £20, 000 a year ISA allowance and who would otherwise earn interest above their PSA. Because prizes are tax-free, holding money in Premium Bonds removes the immediate risk of paying income tax on interest. However, buyers must accept the random nature of returns: many people often assume they are likely to get the headline prize rate or a small chance of winning a large jackpot, but typical returns are usually much lower and the chance of winning £1 million is negligible.

Who is likely better served by conventional savings or cash ISAs

For most savers, cash ISAs remain the better choice because they pay a guaranteed return and are tax-free. The top easy-access cash ISA rate is currently 4. 4%—slightly lower than the top non-ISA easy-access rate but still offering a guaranteed return that is higher than the current Premium Bond prize rate of 3. 6%, and certainly higher than 3. 3% once the cut is applied. Interest rates can go up and down over time, but the certainty of a stated interest rate contrasts with the randomness of Premium Bonds.

Bottom line and practical considerations

The ns&i premium bonds rate change reduces the headline annual prize-fund rate to 3. 3% and slightly worsens the odds of winning. Many people still keep cash in these bonds, but for savers seeking predictable returns or relying on guaranteed interest, interest-bearing accounts or cash ISAs are likely to outperform Premium Bonds for most individuals with average luck. If you accept the trade-off—the possibility of tax-free prizes and the chance, however small, of a large win—Premium Bonds remain an option; if certainty matters, interest-bearing accounts are generally more suitable. Details may evolve, and the reason individuals typically earn less than the headline rate is complex and not fully explained here.