National Savings and Investment (NS&I) bonds are a type of lottery bond issued by the government, which Britons can place money into. Interest is then paid into the bond by the government and a monthly prize draw gives select bondholders a payout. Because this is a lottery bond, the more you buy, the more your chances of winning improve.
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Premium Bonds have been issued in the UK since 1956, and pre-date the famous National Lottery draw.
The Telegraph has estimated around 21 million people across the country own Premium Bonds, which could provide a significant payout upon a win.
However, a new set of changes coming into play are set to affect future Premium Bond prizes.
Next month, NS&I will be reducing its interest rates across fixed and variable savings products, including Premium Bonds.
The changes will come into effect on May 1, 2020 and interest rates will drop by 10 basis points.
Current prize fund rates stand at 1.40 percent tax-free, however the new prize rate fund will be 1.30 percent.
As the tax-free percentage decreases, this will also mean a change in the current odds.
The odds of any £1 Bond number winning any prize will now decrease from 24,500/1 to 26,000/1.
This will come into immediate effect for the May 2020 prize draw.
Ian Ackerley, NS&I Chief Executive commented on the changes.
He said: “Reducing interest rates is always a difficult decision. We need to ensure our interest rates are set at an appropriate position against those of our competitors.
“These changes reflect NS&I’s requirement to strike a balance between the needs of our savers with taxpayers and the stability of the broader financial services sector.
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“We believe our new rates offer our customers a fair return and the assurance of the 100 percent HM Treasury guarantee on all their holdings with NS&I.”
The interest rate changes reflect the fact that due to low gilt yields, the measure the organisation uses for tracking cost effectiveness of finances raised for the government is below target.
It hopes to re-balance the interests of savers and taxpayers, whilst also future proofing the financial services sector.
Premium Bond numbers are generated randomly each month in a similar way to the National Lottery.
The numbers are generated by a machine known as ‘ERNIE’ – the Electronic Random Number Indicator Equipment.
As NS&I is government-owned, there is no risk to any capital placed into a Premium Bond by the owner, as it will never go bust.
The organisation is backed by the Treasury, meaning any Premium Bond owner is only gambling the interest and not any other monetary funds.
NS&I has also explained what can happen to a Premium Bond after the holder’s death.
A brochure from the organisation explained a Premium Bond becomes a part of the estate of the holder after their death.
The bond will continue to take part in prize draws for 12 months following the date of death, unless it is cashed in before that.
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