Some Premium Bonds savers will be more impacted than others by a looming drop in the prize fund price, a financial savings professional has warned.
Provider NS&I has announced another cut in the prize fund price, which will drop from the present 3.8% down to 3.6% from the August draw. The odds of each £1 Bond successful a prize will stay the same at 22,000 to one.
This follows earlier reductions in the prize price in April and in January, and in December last 12 months. Matthew Parden, CEO of financial savings platform Marygold & Co., said the newest charges cut from NS&I is broadly in line with drops in fixed time period and straightforward access financial savings accounts.
Yet he warned that some Bond holders could be more affected by others by cuts the prize price. He defined: “Unlike conventional accounts, Premium Bonds don’t offer assured curiosity.
“So any discount in the total prize price can have a more noticeable impact on expected returns for savers, particularly those holding smaller balances who may go years without successful a prize.”
Previous NS&I figures sourced by AJ Bell found that two thirds of Premium Bonds holders have never won a prize, with the average holding at £5,406.
Calculations by Money Saving Expert indicate that with average luck, if you have £10,000 in Bonds, you will win just £325 a year.
Mr Parden said Premium Bonds are still a good option for some people. He said: “They’re notably standard among higher-rate taxpayers and savers who recognize the pleasure of a month-to-month prize draw, as effectively as the security of figuring out their capital is backed by the Treasury.”
One benefit of Premium Bonds is all the prizes are tax-free, so they are appealing as a savings vehicle if you have used up all your personal savings allowances and ISA allowances.
But the savings expert said others may want to consider switching: “They may be less appropriate for people in search of a regular, assured income from their financial savings or those trying to grow their money in line with inflation.
“For these savers, especially those with more modest balances, the appeal of Premium Bonds may now be outweighed by more competitive, interest-paying accounts elsewhere.”
Looking forward, Mr Parden said further cuts to the prize fund price may effectively come later this 12 months, notably if the Bank of England reduces the base rate of interest again.
The central bank held the base price at 4.25% in its newest determination on June 19, having beforehand cut it from 4.5% on May 8.
Mr Parden said: “NS&I tends to adjust its products to reflect wider market conditions while balancing its funding targets. If rates continue to soften, the prize rate could potentially be reduced further – to somewhere in the region of 3.0% – although any change would likely be gradual to avoid discouraging savers.
“Much will rely on inflation figures and how financial coverage evolves over the coming months.”
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