One £1m Premium Bond prize axed

Some bond holders may be shocked by the prize fund cut

The number of £1m Premium Bond jackpot prizes is being reduced from two to just one next month.

It is part of a shakeup to the range of bond prizes forced by the Bank of England's recent rate cut to just 0.5%.

The total payout on Premium Bonds will be cut by nearly half in April, from almost £59m to £32m, with the annual payout rate dropping from 1.8% to 1%.

National Saving & Investments (NS&I) said it would also bring in a new range of £25 prizes.

"Premium Bonds are unique and are hugely popular with our customers," said Peter Cornish of NS&I.

"Replacing one of the £1 million jackpot prizes with a wider mix of prizes and introducing the new £25 prize category will help us maintain the frequency of tax-free prizes," he added.

The payout rate on premium bonds was last cut in December 2008. Since then the Bank of England has cut its Bank rate from 3% to 0.5%.

The Bank's governor, Mervyn King, said after the latest cut earlier this month that it was unlikely that Bank rate would fall any further.

The new level of Premium Bond payouts will be held for at least three months.

Low rates

NS&I is also cutting the interest rate on its range of savings policies.

Savings with all NS&I policies are absolutely safe as the policies are guaranteed by the UK government.

As a result they have seen a huge influx of savers' money in the wake of the international banking crisis.

This saw the government rescue of banks such as Northern Rock and Bradford & Bingley and of a number of Icelandic banks that operated in the UK.

NS&I's tax-free cash ISA will now pay an annual interest rate of just 0.5% and its Direct ISA will pay 1.3%.

Interest rates on its taxable polices will now range from 0.2% to 1%.