Could Premium Bonds be cut? £20bn has been poured in over the last year

Britons with more money to save over the last 12 months have piled £20billion into Premium Bonds since the first full month of lockdown last year, new figures from National Savings & Investments revealed today.

The latest prize draw results from the Treasury-backed bank said there were 109.2billion eligible bonds in this month’s draw, which saw another holder of the maximum £50,000 take home one of the two £1million jackpots.

In the same month last year, there were 89.2billion eligible bonds in the draw, an addition of 20billion worth of £1 bonds.

Golden ticket: Premium Bonds do not pay interest, but record low savings rates elsewhere have seen Britons opt to try their luck at winning up to £1m a month 

Given they must be held for a full month after being purchased in order to become eligible for the monthly prize draw, last June marked the first time Premium Bonds bought in the first full month of the country’s first lockdown in April would have been entered.

As a result, it means £20billion of bonds have been purchased between April 2020 and the same month this year, at a rate of £1.6billion a month – this is around triple the amount compared to pre-pandemic. 

A further £1.23billion were bought last March, as some had already begun to cut back on non-essential spending prior to the official start of the first lockdown on 23 March.

Record low savings rates elsewhere have seen more and more savers funnel money into the tax-free products, which are held by more than 21million Britons.

Even though the effective prize fund rate was cut to 1 per cent last December, and savers with small sums are likely to win nothing each month, it still compares favourably to rates elsewhere.

The unprecedented buying of Premium Bonds can be illustrated by the fact that prior to May 2020, there were never more than 801million more eligible bonds in any draw since the previous July.

As a result, some analysts and experts have forecast the bonds could be in line for another cut. The odds of winning any prize were already trimmed from 24,500 to one to 34,500 to one last December.

James Blower, founder of The Savings Guru and an adviser to challenger banks, told This is Money: ‘NS&I have a net financing target of £6billion for the 2021-22 financial year. Given they are seeing growth of around £1.5billion-£2billion per month on Premium Bond balances, this doesn’t look sustainable.

‘I expect NS&I’s full year results to also came with an announcement of a reduction to the prize pool as otherwise, NS&I look on track to go significantly above their target.’

Anna Bowes, co-founder of the analyst Savings Champion, added: ‘Bearing in mind the financing target for the current tax year is just £6billion, if the amount of money into Premium Bonds continues to flood in, they could well make a cut to the prize fund rate in order to try and reduce the popularity.

‘The problem is that with interest rates still so low, many people turn to Premium Bonds as they have less to lose if they win no prizes, compared to the lost interest if the rates they could earn elsewhere were much higher.

‘As a result, even if NS&I does cut the interest rate on the Premium Bond prize fund, all that might happen is that there are less prizes to benefit from, but the product remains just as popular as ever. Savers would lose out again.’

The bank raised close to £23.5billion from savers in the 2020-21 financial year, according to the latest figures from the Bank of England.

However, it has seen net outflows in every month since October, after it announced hefty cuts to all of its savings products, including easy-access deals which had previously been best buys.

Most money was withdrawn in November, when the non-Premium Bonds cuts bit, with a net £6.2billion withdrawn from NS&I. In March, the latest month for which figures are available, a net £429million was pulled out.

It suggests some savers who would otherwise benefit from the Treasury-backed bank’s 100 per cent guarantee on their pots are continuing to shop around for better rates, despite the popularity of Premium Bonds.

Last week This is Money revealed that more than £2 in every £5 held in the tax-free bonds was held by just 4.3 per cent of savers who hold the maximum £50,000. As of last month, £46.1billion out of the then-£107.4billion held in Premium Bonds was held by just 920,000 people.

It came after separate figures from NS&I found close to 16million savers, 98.5 per cent of whom held £1,000 or less, had not won a single prize since 2007.

This month 3.16million prizes worth £91million were handed out to lucky winners, from £25 to the two £1million jackpot winners. Savers can check to see if their number is up with This is Money’s prize checker.

Savings accounts

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