Page last updated at 16:06 GMT, Monday, 1 December 2008

Premium Bond prize numbers tumble

Money
There are still two 1m prizes each month with Premium Bonds

Interest rate cuts by the Bank of England have led to a rapid decline in the number of Premium Bond prizes that are awarded.

In December last year, there were 78 winners of the 25,000 prize. This fell to 19 in November this year and just two this month.

The total prize fund has also been slashed, although there remain two 1m jackpot prize winners each month.

Cuts in the bank rate help mortgage holders often at the expense of savers.

National Savings & Investments runs the scheme, and will be expected to cut the fund further if the bank rate drops as predicted on Thursday.

Tax-free

Cuts in the bank rate have led to a fall in the proportion of the fund as a whole that is given out in prizes.

Number of 100,000 winners
December 2007: 20
November 2008: 5
December 2008: 1

For example, in November 1998, when the Bank rate was at 6.75%, the prize fund percentage stood at 5%. This month, with the bank rate at 3%, the prize fund has dropped to 1.8%.

The sharp cuts in the bank rate in recent months has noticeably affected the number of winners.

A spokeswoman for NS&I explained that when setting the prize fund it took into account the bank rate.

With Premium Bonds being tax-free, she said that the amount of money foregone by the Treasury also had to be considered.

In cash terms, the total prize fund fell from 89m in November to 58m in December, with the number of prizes dropping from 1.56 million to 1.07 million in the same period.

"The number of prizes in each monthly prize draw has a direct link to the current prize fund rate," the spokeswoman said.

In December 2007, the total prize fund was 119m, and the number of prizes was 1.71 million.

Safety first

Consumers' fears over the safety of savings during the financial turmoil led to an upsurge in money being deposited by the public with NS&I.

Its accounts, which include Premium Bonds, have the advantage of a 100% state guarantee, whereas deposits in most High Street banks are only covered up to 50,000.

But, as with other savings accounts, the fall in the bank rate has cut returns for customers.

After the cut in the bank rate from 4.5% to 3%, the number of 100,000 prizes fell from five to one a month.

The number of 50,000 prize winners dropped from 10 to one, 10,000 prizes were cut by 49 to five, and 5,000 winners were down from 97 to 13.

There were similar falls in numbers of smaller prizes winners. Those being awarded 1,000 fell from 1,781 to 232. The smallest win of 50 went from 1.506 million in November to 1.042 million in December.



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