National Savings and Investments (NS&I) has announced it is slashing the prize fund rate of its signature Premium Bonds product.
The rate attached to the savings product will be reduced from 4.4 per cent to 4.25 per cent as of December’s prize fund draw in a move that will see a quarter of a million savers miss out on a lottery win.
Unlike traditional savings accounts which earn a set interest rate, NS&I customers who take out Premium Bonds are entered into a monthly prize draw which could see them earn cash boosts.
Every month, two lucky individuals take home the £1million jackpot prize with other sums being up for grabs, including £100,000, £50,000 and £10,000.
Overall, it is estimated that there will be around 265,000 less prize winners in December’s draw with the odds of winning a prize falling to 22,000 to one.
December’s draw is set to pay out more than 5.7 million prizes from the £435million fund, however this is down from nearly six million prizes and £461million in funds from October.
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Andrew Westhead, NS&I’s retail director, broke down why the financial institution is brining rates down at this moment in time.
He explained: “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.
“Our portfolio of both fixed and variable rate products, plus the unique position of Premium Bonds, continues to give savers the choices they need to help reach their savings goals, backed by the safety and security of our 100 per cent HM Treasury guarantee.”
As well as this change to Premium Bonds, the interest rate for NS&I’s Direct Saver will be brought down to 3.75 per cent gross/AER from November 20.
On the same date, the financial institution’s Income Bonds’ rate will be cut 3.69 per cent gross/3.75% AER.
To offset concerns about these rate changes, a new two-year Issue of the British Savings Bonds has been issued.
This product goes on sale today (October 22) offering customers 4.10 per cent gross/AER for the Guaranteed Growth Bond option.
For the product’s Guaranteed Income option, the rate will sit at 4.02 per cent gross/4.09 per cent AER.
This latest action from NS&I comes amid widespread volatility in the savings market.
High street banks and building societies have offered record-high interest rates in recent years in response to the Bank of England hiking the base rate.
However, with the base rate set to fall further by the end of the year, concerns have been raised that savings rate could plummet in the months ahead.