Premium Bonds savers thinking of switching up their savings portfolio have been encouraged to try an ‘unconventional’ route.
NS&I has announced another cut in the prize fund rate following two reductions in recent months. The rate will drop from 4% to 3.8% from April, with fewer prizes in the pot. The odds of any £1 Bond winning will stay the same at 22,000 to one.
Legal expert John Beck, from Beck & Beck Lawyers, is encouraging Bond holders to look at other options as he believes it’s likely there will be future cuts.
He warned: “Premium Bonds still hold some appeal for those who want tax-free potential gains, but the odds of winning continue to decline, meaning they function more like a lottery than a serious savings strategy.”
For those thinking of switching to another savings account, he shared an “unconventional piece of advice”, suggesting an alternative place to put your funds.
He explained: “Instead of looking for just another savings account, consider using part of those funds toward debt reduction, especially if carrying high-interest obligations.
“Paying off a credit card with a 20% interest rate is effectively the same as earning a guaranteed 20% return—something no savings product will ever match.
“Many clients I’ve advised have been surprised by how much they save long-term by focusing on reducing liabilities instead of chasing marginally better savings rates.”
Another finance expert who believes there could be further reduction in the prize rate is financial planner Steven Kibbel, from Prop Firm App. He said the rate could plummet further to 3.5%.
He said Premium Bonds may still be a good savings option for higher earners. He explained: “If you’re a higher-rate taxpayer and you’ve already maxed out your Personal Savings Allowance, Premium Bonds can still make sense, especially if you’re holding less than £50,000 and value the 100% Government guarantee.”
But Mr Kibbel issued a word of caution about the “skewed” prize distribution. The prize fund rate refers to your chances of winning a prize – but it may not be for a huge amount.
The finance expert said: “Most prizes are £25, and realistically, you might not even match the average prize fund rate unless you hold a significant amount of Bonds. For smaller savers, the returns often fall short compared to other options.”
For those who want a guaranteed return on their savings, Mr Kibbel said cash ISAs are one option. Any interest or savings growth in an ISA is tax-free, similar to Premium Bonds prizes.
He said: “Even notice accounts, which require a bit of planning for withdrawals, offer better returns in some cases. If you’re holding Premium Bonds for the tax benefits but you’re not in a higher tax bracket or exceeding the savings allowance, you’re probably leaving money on the table compared to these alternatives.”
Another tip from Mr Kibbel, for those thinking of cashing in their Bonds, is to keep a portion of your savings invested in them, while putting the rest in a conventional savings account.
Giving an example, he said: “If you’ve got £20,000 in Premium Bonds, you could keep £5,000 there and move £15,000 into a fixed-rate bond or an ISA to lock in better returns. That way, you’re diversifying while still giving yourself a shot at those tax-free prizes.”
