The government’s savings arm – NS&I – has confirmed it will make changes to Premium Bonds. These will come into effect next month.

Premium Bonds aren’t like normal savings accounts as they don’t pay interest.

Instead, the interest that should be paid is used to fund a monthly prize draw. This will rise from 1.4% to 2.20% tax-free and means an additional £76m will be added to the prize fund in October.

The odds of each £1 Premium Bond number winning a prize will also improve from 24,500-to-one to 24,000-to-one.

Overall, NS&I said the changes will see the number of £5,000, £10,000, £25,000, £50,000 and £100,000 prizes almost double. There will also be 19 times as many £50 and £100 prizes paid out from October. You can see the full run down in the table below.

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NS&I chief executive, Ian Ackerley, said: “With over 22 million holders, Premium Bonds are the nation’s favourite savings product and are more popular than ever. It’s great to be able to increase the prize pot and give our customers more chances each month to win tax-free prizes.”

The changes come following an increase to the Premium Bonds prize fund rate in June’s draw.

Ackerley added: “This is the second increase to the Premium Bonds prize fund rate that we have made in less than six months. These changes have helped us ensure that Premium Bonds remain attractive, while also ensuring that we continue to balance the interests of savers, taxpayers and the broader financial services sector.”

‘Still only two chances of winning the jackpot each month’

Laura Suter, head of personal finance at AJ Bell, said that as the projected prize rate has been boosted from 1.4% to 2.2%, it puts it above the current top easy-access savings account rate.

However, she warned: “NS&I hasn’t boosted the top prize of £1m and there are still only two chances to win that jackpot each month. Instead, it has rejigged the number of smaller prizes on offer, cutting the number of £25 prizes by more than one million and dramatically increasing the number of £50 and £100 prizes on offer. It has also added eight more chances to win £100,000 and 15 more chances to win £50,000, among other changes.”

Suter added that savers shouldn’t cling to the ‘projected prize fund figure’ as many Premium Bonds holders get zero return on their savings.

“The odds of a £1 Premium Bond number winning a prize has only increased marginally from 1 in 24,500 to 1 in 24,000. Instead, most savers would be better off with a standard easy-access savings account that pays out a guaranteed rate of interest.

“There are a couple of groups of people who could benefit from using Premium Bonds, including the very wealthy and those nearing their tax-free savings allowance,” she said.

But she added: “If the savings rates available elsewhere in the market don’t excite you then you can gamble on the chances of winning one of the top Premium Bond prizes – after all, someone has to win it. Your chances of winning depend on how much you hold in Premium Bonds. So, someone with £100 saved is much less likely to win than someone who has £20,000.”

Prize fund rate changes

The table below shows the current and new prize fund rate and odds of winning, as well as the number and value of Premium Bonds prizes: