In May 2022, the financial institution increased the rate from one percent to 1.40 percent which will see around 1.4 million extra Premium Bonds prizes given out. This comes as banks and building societies are hiking their interest rates after several increases to the Bank of England Base Rate, amid the UK’s soaring inflation rate, which most recently hit 9.4 percent.Experts believe inflation in the country could reach as high as 11 percent by the end of the year which will come at the detriment of people’s savings.
In comparison to other savings accounts, Premium Bonds does not acquire interest each month. Instead, there is a monthly prize draw which could see savers win up to £1million.
Among the other cash prizes someone can win through NS&I’s savings product are £100,000, £50,000 or £25,000.
Before the rate hike, the odds of each £1 Premium Bond number winning a prize was 34,500 to one.
After NS&I’s decision to hike the rate, the odds have now changed to 24,500 to one in a boon for savers.
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Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown, warned that people will find their Premium Bonds savings “eroded” at a time of high inflation.
On the impact of inflation, Ms Coles explained: “You need to understand what you’re giving up.
“You don’t make any interest on money in Premium Bonds. And while at a time of low inflation you may feel this is a small price to pay for the chance of a big win, while inflation is running so hot, it means the spending power of your money is being eroded far more quickly.
“It means holding Premium Bonds comes at a higher cost. You also need to appreciate that the prize rate is not the same as the returns you can expect.
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“If you hold the bonds you won’t make one percent. Those with better-than-average luck will make more, and those with less luck can go decades without a win. In an average year, someone with £1,000 in the bonds will win nothing.”
The finance expert also shared how the latest rate hike affects someone’s chances of winning the £1million Premium Bonds jackpot.
She added: “It’s worth knowing the chances of a win too. While the chance of any win at all with a £1 bond is 34,500, the chances of winning £1million is one in 58.58 billion – which is vanishingly small.
“Of course, on the flip side, all prizes are tax free, so the higher the rate of tax you pay, the greater the advantage.
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“Savers also like the fact that money in Premium Bonds is backed 100 percent by the Treasury.”
After raising the prize fund rate, NS&I chief Executive’s Ian Ackerley, said: “The new prize fund rate ensures that Premium Bonds are priced appropriately when compared to the interest rates offered by our competitors.
“It also ensures that we continue to balance the interests of savers, taxpayers and the broader financial services sector.
“Premium Bonds customers will benefit from the chance to win a further 1.4 million tax-free prizes each month, as well as the peace of mind that customers get with 100 of their NS&I savings being backed by HM Treasury.”
Outside of Premium Bonds, NS&I also raised the interest rates across multiple other savings products this month.
As of July 21, the interest rate of the financial institution’s Direct Saver, Income Bonds, Direct ISA and Junior ISA has gone up.
Next month (August 1), the rate paid on interest for NS&I’s Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificate will also be increased.
Despite these latest wave of hikes, none of these savings accounts will see their rates exceed the 9.4 percent rate of inflation.
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