NS&I warning to millions as Premium Bond holders urged to shut accounts

More than 24 million people hold Premium Bonds, which are guaranteed by the Treasury

Premium Bond holders are being urged to abandon the savings product and shut their National Savings and Investments accounts. From January, the effective prize rate is set to decrease from 4.15 per cent to four per cent, as the overall tax-free value of prizes also dips.

The advice follows a move by National Savings and Investments last month where they slashed the prize fund rate from 4.4 per cent to 4.15 per cent in line with the Bank of England's rate cuts. With an astounding £126bn saved in Premium Bonds which are backed by the Treasury, they have become the UK's top pick for safekeeping money.

AJ Bell's director of personal finance, Laura Suter, issued a stark caution to holders, saying: "The rates are now significantly below the top rates in the market, meaning savers are paying a decent premium for the safety and brand name of NSandI."

James Blower from Savings Guru wasn't mincing words when he advised the Telegraph: "It's time for savers to ditch Premium Bonds NSandI's cut looks ill-timed, just as the Bank of England and markets are pricing in a more gentle fall in rates, they announce a second successive cut."

He explained that with the Base likely staying fixed at 4.75 percent next month, this reduction seems unnecessary and will result in savers, who rely on average luck, garnering less than the 4 percent headline rate. He points out that with easy access rates topping at 4.85 percent and notice accounts offering over 5 percent, savvy savers can find much better yields elsewhere, reports Birmingham Live.

The reductions come in the wake of the Bank of England's move to cut the Bank Rate to 4.75 per cent in October, following a drop from 5.25 per cent to five per cent in August.

Experts suggest that other savings accounts, which are not backed by the government but are usually protected by the Financial Services Compensation Scheme (FSCS) offering compensation up to £85,000, provide higher rates.