Millions of Premium Bonds holders urged to 'close' NS&I accounts in December

24 million people who have Premium Bonds are being urged to ditch them and close their accounts with National Savings and Investments. From January, the effective prize rate will drop from 4.15 per cent to four per cent, as the overall tax-free value of prizes drops.

It comes after National Savings and Investments last month cut the prize funds rate from 4.4 per cent to 4.15 per cent in response to the Bank of England’s rate reductions. More than £126bn is held in Premium Bonds, which are guaranteed by the Treasury, making them the nation’s favourite savings product.

Laura Suter, director of personal finance at AJ Bell, said in a warning to Premium Bonds customers: “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 NS&I.”

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James Blower, of Savings Guru, told the Telegraph: “It’s time for savers to ditch Premium Bonds – NS&I’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.

“With Base likely to remain at 4.75 percent next month, this looks an unnecessary move and savers with average luck will earn less than the 4 percent headline rate. Given that easy access rates are as high as 4.85 percent and notice accounts are still paying in excess of 5 percent, there are significantly better returns elsewhere for savers.”

The cuts follow the Bank of England’s decision to slash the Bank Rate to 4.75 per centc in October, following a decrease from 5.25 per cent to five per cent in August. Other savings accounts, which are not government-backed but are typically covered by the Financial Services Compensation Scheme (FSCS) which provides compensation of up to £85,000, offer higher rates, experts say.