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National Savings and Investments cuts Premium Bond prizes

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Buying Premium Bonds from the government owned NS&I has long been viewed as the safe alternative to stock market investment for the British public; you get to keep all of your original capital, you stand a chance of making a million, and an even better chance of winning a smaller amount.

But if you’re one of the thousands of people eagerly awaiting the monthly Premium Bonds results from Ernie, you’ll be disappointed to learn that since interest rates have been cut to historic lows, NS&I has been forced to slash the prize fund, significantly reducing your chances of winning a big prize. The Premium Bond prize fund has been cut from almost £60 million down to £32 million. Up until now, NS&I have offered two £1 million Premium Bond prizes each month, in addition to numerous lower value payouts, but as of April there will only be a single £1 million prize per month.

The smallest possible prize has been lowered from £50 to £25. NS&I says the chances of winning a prize remain the same – for every £1 Premium Bond you hold, there is 36,000:1 probability of winning a prize each month.
They’ve never really been a particularly great investment (except for the lucky few who scoop the biggest payouts) and now there’s even less incentive to buy Premium Bonds. They may seem like something of a safe haven, given that your capital remains safe, but ultimately the opportunity for growth is left largely to chance. Even in today’s low interest environment you can still get up to 4%pa on a cash ISA, which isn’t great, but at least it’s guaranteed. On the whole, the majority of people who put their money in Premium Bonds will win less money than they would have earned in interest.

That said, any kind of investment is always a balance between risk and reward – and with Premium Bonds the risk you face is that of getting no return at all on your money, weighed against the very small potential reward of getting a significantly higher return than any other kind of investment. And that might seem attractive to a large number of people in the current climate.

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