Premium Bonds rates could be cut but what are the alternatives?

NS&I may reduce prizes as it is approaching its net financing limits

Champagne glasses
Lottery-style savings accounts offer the chance of winning prizes up to £1 million instead of earning interest
(Image credit: Tom Merton/Getty Images)

Premium Bonds holders are being warned that the much sought after prizes may be cut due to a freeze in National Savings & Investments (NS&I) fundraising targets. 

The Treasury-backed NS&I issues Premium Bonds and other savings products that help the government raise money. And it has "raked in" £9.8 billion from savers in the past six months, said The Daily Telegraph.

It has a net financing target of £7.5 billion and can earn either £3 billion more or £3 billion less to keep the wider market competitive. This level was frozen in the "small print" of the Autumn Statement.

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The latest NS&I figures show it delivered £7.7 billion of net financing during the second quarter, giving a half-year total of £9.8 billion. That means it is £700 million away from breaching its extended target, said This Is Money, and experts warn that savers should "brace themselves" for rate cuts as the figure gets close to the net financing limit.

NS&I’s guaranteed bonds have already been pulled and it has cut the rate on its Green Savings Bond, said the Daily Express, but other accounts "will be up for the chop too".

Laura Suter, head of personal finance at AJ Bell, was quoted in the newspaper as saying this is "another sign” that savers should shop around and “nab the best rates before they fall further".

Premium Bonds are the "kingpin" of prize draw savings, said MoneyWeek. But there are alternative "lottery-style savings accounts", The Times Money Mentor reported, and these can give you the chance of winning prizes worth up to £1 million instead of earning interest. 

Alternatives to Premium Bonds

Halifax and Bank of Scotland savers with a balance of at least £5,000 are entered into a draw for prizes worth £550,000 each month. There are three prizes worth £100,000, 100 prizes at £1,000 and 1,500 worth £100. 

Odds will vary, said Which?, "but on average, 1,603 people walk away with a cash prize each month".

Savings app Chip has an account that has "several similarities" to NS&I’s Premium Bonds, said The Times Money Mentor. Every £10 saved into its Prize Savings Account is entered into a monthly draw to win prizes, so "the more you put away the better your chances". Prizes are worth up to £10,000 and each entry has a one in 6,506 chance of winning, added the financial website.

Nationwide has a Start to Save regular saver account "designed to get you to start building up a savings pot", said LoveMoney. If you increase your balance by between £25 and £50 in each of the six months leading up to a prize draw, then you’ll be entered, with a top prize of £250. The next draw is on 20 February 2024.

Alternatively, NatWest runs prize draws for its account holders who use its Round Ups service that saves your spare change by rounding up your everyday debit card spending. The "catch to this scheme", added MoneyWeek, is that you need a NatWest current account.

The Association of British Credit Unions (ABCU) also runs a prize draw for customers from 17 credit unions with a PrizeSaver account. Every £1 saved at the end of the month gives you "one automatic entry" into the following month's prize draw, the ABCU explained. The maximum value of entries is £200 and the maximum prize is £5,000.

Are Premium Bonds and prize draws worth the money?

There is a "trade-off" with lottery-style accounts, added The Times Money Mentor, as you may win tax-free cash but you won't get the "guaranteed interest" from a savings account.

The appeal "entirely depends on how lucky you are", said Rest Less. You will "definitely receive" the advertised rate of interest in savings accounts, but there is "no guarantee" of winning anything in a prize draw.

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