The chance of winning a prize with Premium Bonds has improved in recent months, a development that may become even more appealing to savers as tax rules on savings interest are set to change. This comes as National Savings & Investments (NS&I) faces a shortfall in attracting new funds.
NS&I has increased its Premium Bond prize fund twice this year. The rate rose from 3.3% in April to 4.35% in August, improving the odds of winning from 23,000 to one to 21,000 to one. This move is part of an effort to attract savers to reach its financial year target of £15 billion in new savings, with a £4 billion leeway on either side. In the first six months of the financial year, NS&I reported attracting £4 billion from savers.
This increased focus on attracting funds marks a turnaround from earlier in the year when savers withdrew money. In September, £594 million was added by savers, a significant increase from £356 million in August. This contrasts with a period a few months prior when savers withdrew £29 million.
The government's announcement regarding an increase in the tax payable on savings interest, effective from April next year, is expected to further enhance the attractiveness of Premium Bond prizes due to their tax-free nature. This is particularly relevant for higher and additional rate taxpayers.
NS&I's efforts to boost savings also coincide with a potential increase in the Bank of England's base rate. The base rate, currently at 3.75% since December, is widely expected to rise to 4% to combat rising living costs. Such a move would likely prompt banks and building societies to offer better rates on variable-rate accounts, making it important for savers to monitor their current deals.
Premium Bonds, which went on sale 70 years ago, offer tax-free prizes each month with the security of a government guarantee. Currently, 22 million people hold approximately £138 billion in Premium Bonds.