Another blow for NS&I customers

In the latest blow for savers, the government-backed provider, National Savings & Investments (NS&I), has announced it will be cutting the Premium Bonds prize fund rate from 3.60% to 3.30%, effective from the April 2026 draw. This fall in the headline rate will also cut the odds of each bond winning a prize from 22,000 to 1 to 23,000 to 1.

For the millions of NS&I customers, this is another disappointment which follows a series of recent rate cuts to a number of NS&I products.  

Whilst this latest change may not alter the basic appeal of Premium Bonds, capital security and the chance of tax-free prizes, it does reduce the expected returns and slightly worsens the chances of winning.

The total number of prizes is expected to drop from over 6.2 million in March to around 5.9 million in April. While the two £1 million jackpots remain, the "middle" and "lower" tiers of prizes are being squeezed.

Why is NS&I cutting the rate?

Although this latest announcement came at a time when the broader savings market had begun to soften, with many banks trimming their rates, there is another important factor in the background.  

One of the key reasons for this move is likely to be so that the annual Net Financing Target isn’t breached. The Net Financing Target is the amount of money the Treasury tasks NS&I with raising from the British public each tax year – and the current target is £13 billion.

The latest provisional results for the third quarter of the 2025/26 tax year show that NS&I is already very close to its target. By the end of December 2025, they had already raised £9.9 billion, with a forecast of reaching £13.6 billion by the end of the financial year – so slightly over target, although within the leeway of plus or minus £4 billion.  

When NS&I has too much money coming in, its products need to be less competitive, making them less attractive, discouraging a further flood of cash that they simply don't need. This latest move follows recent cuts to the Direct Saver and Income Bonds, as well as their fixed term accounts, proving that the Treasury is currently feeling  well-funded.

Are Premium Bonds still worth considering?

Although now a little less appealing, Premium Bonds are likely to remain a popular choice, especially for taxpayers, as winnings are tax-free. Rather than paying interest, Premium Bonds give holders the chance to win prizes ranging from £25 to £1 million each month, although as mentioned above, the odds of winning any prize have reduced a little.

Despite this, many savers are likely to keep their Premium Bonds because of the ‘what-if’ factor – the excitement of potentially winning big.

And for those who pay tax on savings interest, Premium Bonds could offer particularly competitive returns. For example, a tax-free win of the new prize fund interest rate of 3.30% is equivalent to a 4.13% return for basic-rate taxpayers, 5.50% for higher-rate taxpayers, and 6% for additional-rate taxpayers in a taxable savings account. No savings accounts currently offer anything close to these rates for higher and additional taxpayers.

Of course the risk is that you win either less than this or even nothing at all, although the latter is highly unlikely if you have a larger holding in Premium Bonds. However, for someone holding only a small balance, it is entirely possible to go years without winning anything.

Premium Bonds remain a quirky and popular savings product, but they work best when viewed as a safe place for cash with the added excitement of a prize draw, rather than a reliable source of income.

And as NS&I carefully manages its funding targets, further tweaks to rates across its range of accounts should never come as a surprise. 

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This article is for information only and does not constitute individual advice. 

The Financial Conduct Authority (FCA) does not regulate cash flow planning.