NS&I today announced that it was reducing the annual Premium Bond prize fund rate by 0.20% to 1.30%1 from 1 August 2013.  The odds of each £1 Bond number winning a prize will change to 26,000 to 1 from 24,000 to 1.

NS&I Premium Bonds give you the chance every month to win £1 million. Instead of paying interest, NS&I hold monthly prize draws with a £1 million jackpot and over a million other cash prizes. As this is treated as ‘winnings’ tax is not normally due.

And because NS&I is backed by HM Treasury, you can be confident that all the money you invest in Premium Bonds is 100% secure whether or not you win a prize. But remember, inflation can reduce the true value of your money over time.

As the investments are normally free of tax, the latest 1.30% interest rate is worth an effective:

Tax rate Premium bond rate Effective rate
0% tax payer 1.30% 1.30%
10% tax payer (savings only) 1.30% 1.44%
20% tax payer 1.30% 1.63%
40% tax payer 1.30% 2.17%
45% tax payer 1.30% 2.36%
60% tax payer (caused by loss of personal allowance at £100k) 1.30% 3.25%

Note: Due to the random nature of winnings, an individual may receive much more or much less than the figures above, the interest rate represents the average expected winnings.

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