Sylvia Morris: Premium bond prices are falling exactly as I predicted. This is what I do now

It’s disappointing news for the 24 million of us who hope for a Premium Bond win every month.

As I predicted in Money Mail last week, the government-run National Savings & Investments (NS&I) is cutting the amount it pays out in prizes. The prize money for Premium Bonds will fall from 4.4 pc in December. to 4.15 pc. That means £25.6 million less will be paid out – with 264,868 fewer prizes. The odds of winning will drop from the current odds of 21,000 to 1 to 22,000 to 1. NS&I claims the change has been made in response to a changing savings market.

I suspected a cut was planned, but it’s a surprise move from NS&I, just a week before the Budget, when the Chancellor could make announcements that would impact his strategy.

It tells me that money is flowing into NS&I at such a pace that it is in danger of exceeding the target amount it needs to raise this year.

With 4.4 pc. the draw rate of the Premium Bond prizes was still attractive compared to regular, easy-to-access accounts where top rates range from 4.87 to 5pc. Especially considering that prizes are tax free.

And it must remain that way. The Bank of England is likely to cut the base rate from its current 5% at its next meeting on November 7, and perhaps again in December.

The banks have already cut savings rates and should make further cuts at the end of the year.

With this in mind, I will keep my Premiums Bonds. I find they are great for storing money that will be needed soon, but might as well be put to work until then. After the cut, there are still two £1 million jackpots, but five fewer £100,000 winners. Worst hit are the £100 and £50 prizes, down from 139,999 each to 2,072,099 each.

NS&I has also announced major cuts to the Direct Saver account and fixed-rate bonds. From November 20, the interest rate on Direct Saver will decrease by 0.25 percentage point from 4 pct. to 3.7 pc.

Income bonds will fall for the first time since September 2020 – from 3.93pc. to 3.69 pc.

The new issue of the two-year British savings bond went on sale yesterday at a lower price of 4.10 pc.

As of yesterday, the two-year guaranteed growth bonds and guaranteed income bonds also saw a shave of 0.15 points, to 4.1 pc respectively. and 4.02 pc.