Premium Bond prize fund to be cut

NS&I rates are coming down but are tax-free

The number of Premium Bond prizes is being reduced following the recent cut in the Bank rate to 3%.

National Savings & Investments (NS&I) said the total Premium Bond prize payout would drop from �87.8m this month to about �57m in January 2009.

The number of Premium Bond prizes will fall from 1.54 million to 1.1 million.

There will still be two �1m jackpot prizes a month, but the overall odds of winning a prize have risen from 24,000-to-1 to 36,000-to-1 per �1 bond.

Someone who had invested the maximum of �30,000 in Premium Bonds will now win, on average, 10 prizes a year, NS&I says.

100% safe

In the past few months NS&I has seen an upsurge in money being invested by the public, who have been keen to take advantage of its 100% state guarantee following the recent worries about the solvency of High Street banks.

Rates on NS&I accounts were cut previously in October after the Bank of England cut the Bank rate from 5% to 4.5%.

In the light of its latest cut, from 4.5% to 3%, other variable NS&I savings rates - for Individual Savings Accounts (ISAs), income bonds, investment accounts and savings accounts - are also being reduced alongside those for Premium Bonds.

The interest rate on the popular cash ISA has been cut to 2.4% from 3.9%, and that on income bonds has fallen by 1.3%, less than the 1.5% cut announced by the Bank of England earlier this month.

One group of savers are, however, being offered slightly more than before by NS&I.

It is raising the interest rate for customers who have between �5,000 and �9,999 in its Easy Access savings account, from 1.15% to 1.45%.

Most NS&I accounts pay interest tax free.