Premium Bond holders have smaller chance of winning big

Hand holding out a selection of UK pounds sterling currency
Hand holding out a selection of UK pounds sterling currency

From Monday, the prize pot for Premium Bonds will be slashed by £5.7 million, cutting bond-holders' chances of a big win.

More than five thousand prizes are set for the chop, and the total fund will fall from £69.5 million to £63.8 million.

There will still be two £1 million prizes, but the number of £100,000 prizes will fall from three to two. There will be six worth £50,000, nine worth £25,000, down from 13 and more than 100,000 fewer £50 and £25 prizes.

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It's the second time in a year that the chance of winning has fallen, with the odds falling from 26,000-to-1 to 30,000-to-1 last summer.

All this means that the average return on Premium Bonds will fall from 1.25% a year to just 1.1%.

"We appreciate that savers will be disappointed, but we believe that the new rates present a fair offer to customers, who will continue to benefit from our 100 per cent HM Treasury guarantee on all holdings, as well as tax-free prizes for Premium Bonds," comments Steve Owen, acting chief executive at NS&I.

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So are Premium Bonds still worth it?

One of the biggest appeals of Premium Bonds is that, as Owen points out, prizes are free of tax.

However, this isn't the unique selling point that it once was. Since April last year, the new Personal Savings Allowance lets savers earn up to £1,000 a year in interest with paying tax - and very few Premium Bond holders will make more than this.

And with plenty of savings accounts - and even some current accounts - offering rates higher than the average 1.1% from Premium Bonds, the numbers simply don't stack up.

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However, Premium Bonds are likely to stay popular. They give rather more excitement than a bank account, as there's always the chance of a big win - however small that chance.

Many people like to buy them for children or grandchildren as a result.

"You may decide that you like a punt, and even if the odds are great, then putting a non-substantial portion of your savings into Premium Bonds isn't too bad an idea," comments Martin Lewis of MoneySavingExpert.