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Premium Bonds issued £2,250 shortfall warning as NS&I cuts prize rate

Reach Daily Express | February 25, 2026 2:40 PM CST

Premium Bonds savers may be thinking through their options as NS&I has announced it is slashing the prize fund rate. Each £1 Bond goes into the monthly prize draw with the chance of being paired with a prize, rather than getting an interest rate as with a conventional savings account.

The allure of the scheme is you can win big prizes such as £100,000, £50,000 or even a £1million jackpot. But the vast majority of prizes are for small amounts, such as £25 or £50, and your chances of winning are very slim - and soon they will be falling further. Provider NS&I has announced that the rate for the scheme is to drop from the current 3.6 per cent to 3.3 per cent, from the April 2026 draw.

The odds of any £1 Bond winning a prize are also falling from the April draw, down from 22,000 to one to 23,000 to one. This is the first time NS&I has announced a rate cut this year, but there were three cuts last year, with the Bank of England also reducing the base interest rate in recent months.

With the dwindling chances of a win, this raises the question of whether Premium Bonds are the right place for your savings. Henrietta Grimston, chartered financial planner and partner at Saltus, said the scheme remains a good choice for some people.

She explained: "Premium Bonds make sense for some savers because they remain one of the safest places to hold cash, with 100 percent capital security and tax-free outcomes, which will continue to appeal to people who prioritise certainty and flexibility over returns." As NS&I is a Government-run savings provider, all your holdings are backed by the Treasury.

However, if you're putting your cash in Bonds primarily as it's a safe haven for your money, you may want to bear in mind that with Premium Bonds, you can only hold up to £50,000. However, under FSCS rules (Financial Services Compensation Scheme), your funds are protected up to £120,000 per person per financial institution, a full £70,000 more than the limit you can hold in Premium Bonds.

Longer odds

Ms Grimston spelled out the reality for Bond holders, with the rate cut looming: "The cut to the prize fund rate and longer odds further reduces the likelihood of achieving anything close to a competitive return, particularly for smaller holdings. As a result, Premium Bonds are best viewed as a low-risk cash holding rather than a true savings or investment product, and they should sit alongside other options rather than replace them."

If you moved your holdings over to a savings account, you could get guaranteed growth on your holdings in line with the interest rate, while with Premium Bonds you can go months or even years without winning a penny. All the while the value of your holdings loses value in real terms due to inflation.

At the time of writing, you can get rates of more than 4.5 per cent with easy access savings accounts. If you put £50,000 in an account paying 4.5 per cent, you could earn £2,250 over a year. As most Premium Bonds prizes are for £25 or £50, you would need a string of wins or to scoop a few larger prizes over a year to beat this. While the harsh reality is that you may take home nothing.

Other ways to build your savings

If you are thinking of cashing in your Bonds, Ms Grimston explained some of the options to look at. She said: "The right alternative depends on how long the money can be left untouched.

"Short-term money may be better suited to cash ISAs or fixed-rate savings, while longer-term money may be more appropriately invested through ISAs, pensions or diversified investment solutions." Another question is whether there could be further rate cuts. Experts are predicting the Bank of England could axe the base interest rate over the coming months, so other Premium Bond rates could follow.

Ms Grimston said: "If savings rates continue to soften across the wider market, further reductions are possible. Premium Bonds tend to follow broader interest rate trends, so any future changes are likely to be gradual rather than sudden."

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