NS&I has announced that it will increase the rate of the Premium Bonus prize pool from 1 per cent to 1.4 per cent, a move Express.co.uk requested earlier this year.
The prize pool rate is the percentage return you can expect to earn each year, hopefully on average.
The change comes into effect from the June draw and the odds of each £1 Premium Bonus winning a prize will also improve.
Starting next month, they will drop from 34,500 to 1 to 24,500 to 1.
Clients also have the opportunity to win a further 1.4 million tax-free prizes each month in a move that Interactive Investor’s chief investment officer, Victoria Scholar, said was long overdue. “The prize fund rate has been static for 18 months, while the Bank of England base rate has risen from 0.1 percent to 1 percent since December.”
NS&I needed to make Premium Bonds more competitive as the Bank of England steadily raises rates, but one thing hasn’t changed, said Laura Suter, director of personal finance at AJ Bell. “The chance of winning the grand prize of £1 million Premium Bonuses hasn’t improved, with only two available each month.”
However, the probability of landing a net prize of £100,000 or less has slightly improved, he added.
Savers can earn a slightly better 1.5 percent with easy access from JP Morgan’s new Chase savings account.
Unlike the Premium Bonus prize rate, this return is guaranteed and not dependent on luck.
READ MORE: Premium bonds: NS&I savings ‘may not be right for you’
The Bank of England looks set to raise the base rate several more times this year, meaning today’s best buying fixed rate savings rates may soon look disappointing.
However, there is no guarantee and there is another catch, Bowes said. “As long as you’re waiting for the next best rate, your money will earn less.”
There are other considerations.
With Premium Bonuses you can access your money at any time. You can also save from as little as £25 to as much as £5,000.
By contrast, you need a minimum of £1,000 to take out Paragon’s one-year bonus, and £5,000 for United Trust Bank’s three-year and five-year fixed rates.
With Premium Bonuses, you have peace of mind as your money is backed by the HM Treasury.
However, the first £85,000 in a UK savings account has similar protection, under the Financial Services Compensation scheme, or FSCS.
Bowes said that mixing and matching works best. “To protect the real value of your money against inflation, consider distributing a variety of savings, including easy access, fixed-rate accounts, and Premium Bonds.
Remember that no savings account offers what Premium Bonds does: the opportunity to become an overnight millionaire.