Page last updated at 10:00 GMT, Wednesday, 19 November 2008

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.

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