Premium Bond prizes held steady

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

The Premium Bond prize fund is to stay at current levels in February and March - despite cuts in interest rates.

National Savings & Investments (NS&I), which runs the scheme, is also creating a new lower prize category of £25 which could be introduced from April.

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

NS&I said it was cutting returns paid on variable rate and fixed interest savings products by up to 1.85%.

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

'Wins important'

The total Premium Bond prize fund will be held at an average of 1.8% to people who have up to the maximum £30,000 invested.

And though the prizes have been slashed in recent months, there remain two £1m jackpot prize winners each month.

The big sell of Premium Bonds is the win factor. While people will win less, they will win less more often Martin Lewis MoneySavingExpert.com

The £25 prize category will be used to produce more winners, and will be used alongside the existing prize fund categories which range from £50 to £1m.

"This is because our customers generally state that frequent prize wins are particularly important to them," an NS&I spokeswoman said.

The total Premium Bond fund in January was £58.3m, with just one winner of both the £100,000 and £50,000 prizes.

This compares with a fund of £97.7m, when there were ten winners of £100,000 and 19 bond holders taking £50,000.

'Savvy'

Most people would have expected the Premium Bond prize fund to have been much lower, said Martin Lewis of MoneySavingExpert.com.

"To freeze it shows the panic the powers that be are in over the damage to Premium Bonds reputation, following huge media coverage of their terribly low returns," he added

"This is the first time the rates have been higher than Bank of England base rates, tantamount to simply throwing money out to the crowds.

"As people feel they 'win' rather than 'earn interest', they're more likely to spend it which is exactly what the economy needs."

He added the introduction of the £25 prizes was a "savvy political move".

"The big sell of Premium Bonds is the win factor. While people will win less, they will win less more often."

'Understand impact'

NS&I is reducing the rates paid on its variable rate savings products, such as its easy access savings accounts and its ISAs, by up to 1%. Returns on income bonds are being reduced by 0.5%.

These are the first reductions made on the products since interest rates were cut in November. Since then the base rate has fallen by 1.5%.

We always set our interest rates in a fair and measured way Peter Cornish NS&I

Interest paid on new fixed rate savings products, such as fixed interest savings certificates, is being cut by up to 1.85%.

Savings already invested in NS&I's fixed rate savings range will not be affected.

"We always set our interest rates in a fair and measured way," said Peter Cornish, director of customer offer at NS&I.

"Since the changes to the base rate last December we have taken the time to understand the full impact of any potential changes on our customers."