NS&I is increasing the prize fund rate to the highest level since March 1999 this week, increasing from four per cent to 4.65 per cent.
The odds of winning in the Premium Bonds prize fund draw will also change, improving to 21,000 to one.
The move, effective from the September 2023 prize draw, will see an estimated extra £66million added to the prize fund.
There will be a potential prize pot of more than £470million, with 5,785,904 prizes available from September – a rise of more than 269,000 compared to August 2023.
Premium Bonds holders will have a better chance of winning a prize
Dax Harkins, NS&I’s Chief Executive, said: “Premium Bonds are one of the nation’s favourite savings products, so increasing the prize fund rate to its best level since 1999 and improving the odds means that more people will have the chance to win prizes each month.
“These rate increases will help ensure that our savings products remain attractive to customers, whilst ensuring that we continue to balance the needs of savers, taxpayers and the broader financial services sector.”
The odds of winning per £1 Bond number for the August 2023 prize draw were 22,000 to one.
There will still be two £1million jackpot prizes up for grabs, and 90 prizes worth £100,000 estimated in September’s draw, which takes place this week, up from 77 in August.
There were 154 prizes worth £50,000 up for grabs in August 2023, with 181 estimated to be available next month.
The Premium Bonds prize fund rate has been increased for three consecutive prize draws, rising from 3.3 per cent to 3.7 per cent in July 2023 and then to four per cent in August 2023.
It has increased several times since last May, when the rate increased from one per cent to 1.4 per cent.
Laura Suter, head of personal finance at AJ Bell, said the increase was “inevitable” amid rising competition in the savings market.
She said: “In June NS&I clocked up its third month of falling inflows and actually saw no net inflows, as any money savers put with the provider was wiped out by withdrawals.
“Taking a punt on Premium Bonds was a more attractive gamble when interest rates were rock bottom.
“But now savers are giving up returns of 5% on easy-access accounts for the chance they might win big on Ernie, which is a tougher call to make.”
Dax Harkins said the rate increases 'will help ensure that our savings products remain attractive to customers'
Ms Suter added: “When NS&I increases its rates it can add more prizes to the prize fund and change the odds, meaning that you are also more likely to win a prize.
“Interestingly this is the second time in two months the provider has also improved your odds of winning, up to 21,000 to one.
“In comparison, the odds in May last year were only 34,500 to one, so a decent improvement in just over a year. But crucially, there are still only two chances each month to win the ultimate £1million prize.”
Myron Jobson, senior personal finance analyst at interactive investor, warned the increase to the prize fund rate doesn’t mean the average person will get a heightened rate on their savings.
He said: “Premium Bonds can be fun lottery-style alternatives to an easy access savings account and might tempt some savers hoping for good luck to bolster their wealth amid the cost-of-living crisis.
“But the fact remains that while some savers might be lucky enough to hit the jackpot or win big early on, others may save and wait for long periods for even a small return.”