Premium bond holders get a better chance of winning prizes

theguardian.com:

There was good news this week for Britain’s 21 million-strong army of premium bond holders: your chance of winning is about to increase.

NS&I has announced that the premium bond “prize fund rate” – the proportion of the total amount invested paid out in prizes – is being upped from 1% to 1.4% next month.

The news comes just before the 65th anniversary of the day the number-generating machine Ernie created the first ever winners.

When you buy premium bonds, you are entered into a monthly prize draw where you can win between £25 and £1m tax-free. The new higher prize fund rate means the odds of winning a prize with each £1 bond number will shorten to 24,500-1 from the current 34,500-1. An estimated additional 1.4m prizes will be paid out in June’s draw.

But while the rejig will put money into the pockets of more savers, it is important to be aware of the big downside of premium bonds in the current climate. They don’t pay any interest and so are more vulnerable to inflation than other savings.

In April, the official rate of inflation climbed toa 40-year high of 9%, and it looks likely to go even higher.

“At a time of low inflation, you may feel this is a small price to pay for the chance of a big win, [but] while inflation is running so hot, it means the spending power of your money is being eroded far more quickly,” says Sarah Coles, an analyst at investment firm Hargreaves Lansdown. “It means holding premium bonds comes at a higher cost.”

The change has come in response to a series of Bank of England rate rises, which have pushed up savings rates across the board. A rate of 1.4% is higher than the interest some people will be getting on their savings.

The number of £1m prizes is not changing – it is being kept at two a month.