Premium Bonds expert says funds 'can't be relied on' after prize rate slashed

Premium Bonds savers have been warned that their chances of winning could plummet even further, after provider NS&I announced a cut to the prize fund rate. From the December draw, the rate will drop from 4.4 percent to 4.15 percent, with the odds of winning for each £1 Bond to also fall from 21,000 to one, to 22,000 to one.

With this reduction, there will be approximately 260,000 fewer prizes in the December draw compared to October, although the two jackpot prizes for £1million will still be on offer. Steven Kibbel, financial planner and chief editorial advisor at Gold IRA Companies, cautioned Premium Bond savers that they "can’t count on them as a solid way to grow your savings anymore".

Spelling out how things stand, he said: "We’ve already seen cuts, and more could follow. NS&I adjusts its rates depending on a lot of factors, and they’re not immune to the economic shifts we’re all dealing with."

He urged people to take a look at where their savings are invested, explaining: "It’s smart to keep an eye on alternatives and spread out where you put your money. Relying on Premium Bonds alone doesn’t cut it for most people these days. You want stability, and unfortunately, Premium Bonds just aren’t offering that right now."

Winning Bonds in the monthly prize draw are selected randomly, with each £1 Bond having an equal chance of winning. Prizes range from £25 up to £1million, with several large cash prizes for £100,000 and £50,000.

In announcing the cut, Andrew Westhead, NS&I Retail Director, said: "As the savings market continues to change, we need to lower the rates on some of our products to help us meet our Net Financing target, while also ensuring we continue to balance the interests of our savers, taxpayers and the broader financial services sector. Even with the changes, we’re still expecting to pay out over 5.7 million prizes worth over £435million in the December Premium Bonds draw."

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NS&I is also poised to reduce the interest rate on its Direct Saver and Income Bonds from November 20, with the figure going from 4 percent to 3.75 percent. Looking at other options for those thinking of cashing in their Premium Bonds, Mr Kibbel commented: "People should consider where they are in life and what their savings goals are. If you’re after long-term growth, focus on accounts that guarantee returns. If you’re okay with a little uncertainty, then maybe keep some money in Premium Bonds, but I wouldn’t bet on them being your main savings vehicle anymore."

Rates for NS&I's British Savings Bonds have been revised downwards too. Guaranteed Growth Bonds now offer 4.1 percent instead of 4.25 percent, and Guaranteed Income Bonds have been adjusted to 4.02 percent from 4.17 percent.

Sarah Coles, head of personal finance at Hargreaves Lansdown, hinted that the relatively new British Savings Bond could be short-lived given the current changes. She cautioned: "They’ve only been on sale since August, and at this rate their days may be numbered. You can do far better elsewhere, with the best on the market offering 4.6 percent.

"And while the Treasury guarantee of your savings and the attraction of the brand will go a long way, for plenty of people it’s not going to makeup enough ground. These bonds look unlikely to shake or stir anyone."