Millions of premium bond holders were dealt a blow today after their chances of winning a prize were cut and the monthly prize fund slashed by nearly £8m.
National Savings & Investments (NS&I) said the odds of any £1 bond winning would widen from 24,000 to 1 to 26,000 to 1.
NS&I also cut the prize fund interest rate for premium bonds – popular with parents and grandparents putting money aside for children’s futures – from 1.5% to 1.3%, meaning a smaller pot to pay out wins each month.
The Government-backed business, which has a remit to have rates that reflect but do not lead the market, is having to cut them in line with low interest available elsewhere.
More than 22 million people have over £45bn invested in NS&I’s premium bonds.
Each £1 bond is entered each month into a draw with a top prize of £1m but with nearly two million bonds winning smaller amounts between £100,000 and £25.
The total prize fund for one month is set by calculating one month’s interest on the total value of all eligible bonds.
It is this rate that is now being cut from 1.5% to 1.3%, meaning the August prize fund will be £49.3m, a fall from the £57.1m this month.
The total number of prizes has been reduced, from just over 1.9m to 1.75m, reducing the chances of winning overall. In addition, the spread of prize values has been changed so that a greater proportion are at the lower end of the scale.
It is the first time the rate has changed since October 2009, when it was raised from a 1% rate set at the height of the financial crisis.
Last month, NS&I announced that it was also cutting rates on ISA, income bond and direct saver products.
The changes reflect the fact that the products have effectively become too attractive for savers when compared with those offered by banks and building societies – potentially distorting competition and giving a bad deal to taxpayers who back the business.
NS&I must meet a target not to increase stocks by more than £2bn in the financial year but results today showed that it had already received £1.7bn net in the first quarter.
Chief executive Jane Platt said: “Rates across the savings market have fallen over recent months, resulting in NS&I savings being increasingly attractive.
“To ensure we stay within our net financing target – and in light of our framework to balance the needs of our savers, taxpayers and the stability of the broader financial services sector, we now need to reduce the premium bond prize fund rate.”