Premium Bond organisers are to scrap one of the two £1 million prizes and slash the total value of payouts in half.
As of April, the Premium Bond prize fund rate will fall from 1.8% to 1%, dragging the total amount paid out to holders from £59 million to just £32 million.
In order to maintain holders' chances of winning some form of prize, the second jackpot will be broken down into a number of smaller prizes, and a new £25 prize will be introduced. Currently, the smallest amount that can be won is £50.
Premium Bond organiser National Savings & Investments (NS&I) says the changes are a result of the tumbling base rate, which now stands at 0.5%.
Bond holders are forgotten victims
While much has been made of the the fact that
savings rates have been in free-fall in recent months, the plight of Premium Bond holders has been largely overlooked.
One year ago, the Premium Bond prize fund rate stood at 3.60%, with the total payouts valued at £107.5 million. Now, holders will receive less than a third of that amount.
Similarly, bond holders received an additional 600,000 prizes last March, with odds of winning at 21,000 to one, compared to 36,000 to one today.
Premium Bond holders losing out
The average customer holds roughly £1,100 in Premium Bonds. Assuming average luck, it means he or she will now have to wait more than two years to win anything.
Put another way, they will earn a tax-free interest rate of 1%, or an average annual return of just £11.
By contrast, if he or she invests that money in the
best paying cash ISA (3.51% AER), they will earn a guaranteed £38 a year on their investment – over three times as much.
Consider a better investment - guaranteed
Of course, people buy Premium Bonds as they like the lottery aspect that gives them a chance of winning one of the bigger prizes without risking their initial investment.
The problem is that, as a lottery, Premium Bonds offer extremely poor odds. As a point of comparison, £1 on the national lottery offers a 1 in 57 chance of winning and is over 1,000 times more likely to hit jackpot.
If you want to make an investment that offers a bit of fun too, why not open a
top paying ISA and use the extra interest (anything above the 1% paid out on Premium Bonds) to play the far more competitive lottery each month?
This way you are not risking any of your initial capital, you're guaranteed to at least match the return of the average Premium Bond holder, and you stand a far better chance of winning big.
