Savers hoping that NS&I’s latest Premium Bond prize fund cut would be the last may be disappointed – with one expert warning more reductions could be in the pipeline. The Treasury-backed savings giant recorded a massive net inflow of £5.5 billion between October and December 2024, far exceeding expectations.
That deposit surge helped push NS&I’s total net financing for the financial year to £8.9 billion – just shy of its £9 billion target, with three months still to go. With the Government setting a new £12 billion fundraising target for 2025/26, NS&I is expected to continue balancing savers’ interests with market conditions. But after a series of recent rate cuts – including the reduction in big-money Premium Bond prizes from April, when the prize fund rate drops from 4% to 3.8% – experts say further reductions could follow.
Premium Bonds are a unique savings product where instead of earning interest, savers are entered into a monthly prize draw for tax-free cash prizes. The more bonds somebody holds, the more chances they have to win, but there’s no guaranteed return on their money.
Sarah Coles, head of personal finance at Hargreaves Lansdown, believes NS&I’s runaway success in attracting deposits explains its decision to slash rates.
She warned: “Premium Bond woes may continue even after the NS&I fundraising target increases.”
“NS&I had a massive third quarter, delivering £5.5 billion, which explains the raft of recent rate cuts. It meant the organisation had almost entirely filled its boots for the current tax year, when it had three months left to run.”
The question for Premium Bond holders now is whether the April cut will be the last – and Ms Coles is sceptical.
She explained: “On the one hand, the fundraising target will rise to £12 billion. On the other, we’re expecting savings rates to fall across the market, and the prize rate is likely to fall in step with it.”
NS&I has already responded to falling interest rates by cutting returns across multiple products, citing changes in the wider market and a reduction in the Bank of England’s base rate.
Ms Coles pointed to the huge demand for NS&I products as a sign that savers may still be willing to pile in, even as rates drop. She said: “The rush into NS&I in the third quarter shows how much pent-up demand there is.”
However, for Premium Bond holders hoping for stability, her conclusion was blunt: “Sadly for bond holders, it means this is unlikely to be the last of the cuts to the prize rate.”
