National Savings and Investment (NS&I) revealed on Tuesday that it will increase the premium bonds prize fund rate from 1% to 1.4% from June 2022, amounting to an extra £1.4m ($1.8m) available to savers.
This means that the odds of each £1 premium bond number winning the draw will change from 34,500 to one, to 24,500 to one.
There will be an estimated 10 prizes of £100,000 in June, up from six previously, while there will be 19 £50,000 prizes, up from 11. The number of £10,000 prizes up for grabs will rise to 98 from 58.
However, there will still only be two £1m prizes each month.
It is the first change in 18 months despite the Bank of England (BoE) base rate rising from its pandemic lows of 0.1% to 1% over the period to tackle inflation.
Premium Bonds is a savings product managed by NS&I, backed by the British government via HM Treasury. Currently more than 21 million people hold premium bonds.
John Glen, the economic secretary to the Treasury, said: “Premium Bonds have offered the public an alternative way to save since they were first introduced in 1956, and next week marks 65 years since ERNIE drew the first Premium Bonds prize winners.
“I’m delighted to see NS&I raise the prize fund rate on Premium Bonds, which will see an additional 1.4 million prizes worth £40m being returned to savers each month — helping to put money in the pockets of the nation’s savers.”
Ian Ackerley, chief executive at NS&I, added: “The new prize fund rate ensures that Premium Bonds are priced appropriately when compared to the interest rates offered by our competitors.
“It also ensures that we continue to balance the interests of savers, taxpayers and the broader financial services sector.”
Watch: How does inflation affect interest rates?
Savers are able to invest a maximum of £50,000 into premium bonds for a chance to win up to £1,000,000. The prizes are free of income tax and capital gains tax.
The news is likely to be welcomed by a number of UK households who are currently struggling with a sharp cost of living crisis, and rising inflation, which hit a 40-year high of 9% in the 12 months to April.
This was up from 7% in March due to a £693 rise in energy bills last month, and the ongoing war in Ukraine.
Myron Jobson, senior personal finance analyst at Interactive Investor, said the move was “long overdue”.
“Premium Bonds customers now have a chance to win a further 1.4 million tax-free prizes each month, but the fact remains that while some savers might hit the jackpot and win a large prize early on, others may save and wait for long periods for even a small return,” he said.
The reason for the "most" is that for the less than 1 in 20 who do pay tax on savings interest (generally higher earners with large amounts of savings) then with the full amount in - you will on average outperform top easy access accounts (but not fixes) https://t.co/n0U1kPcxKR
— Martin Lewis (@MartinSLewis) May 24, 2022
“Despite recent increases to NS&I’s savings rates, its products still lag behind many savings products available elsewhere, so it still pays to shop around for the best deal. There are very few places you can save at a higher rate than inflation which surged to a 40 year high of 9% last month, but you should still make your money work harder for you where you can.”
“Premium bonds remain a tantalising proposition – particularly for those with very large amounts of savings who welcome the extra protection offered by the Treasury.”
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Premium Bond savers have a reason to celebrate on the eve of the bonds’ 65th birthday. After lagging the savings market for months, it has boosted the prize rate back to 1.4%, and is living up to its reputation as a national treasure.
“This is particularly welcome, because despite falling well behind competitive savings accounts, the Bonds were still attracting plenty of cash at the lower rate. Between the April and May draw, the number of bonds rose by over 655 million, which means £655m more for NS&I coffers.”
Watch: How to save money on a low income