Have you ever checked your Premium Bonds app first thing in the morning, heart racing just a little, hoping today might be the day Ernie makes you a millionaire? Most of us haven’t won the jackpot yet, but right now there’s a genuine chance the odds could improve – at least for a while.
The Autumn Budget quietly slipped in a detail that barely made the headlines amid all the tax chatter, yet it could matter a lot to the millions of us with money in Premium Bonds. The government has raised the amount it wants National Savings & Investments (NS&I) to pull in from savers next financial year. We’re now looking at a £13 billion net financing target instead of the £12 billion previously expected.
That extra billion might sound like small change in Whitehall terms, but for NS&I it’s a big ask – especially when you consider they’ve only managed £3.9 billion in the first seven months of the current year. Do the maths and they need to find another £9 billion-odd pretty sharpish. And we all know the main way NS&I attracts money when it’s playing catch-up.
Why the Prize Fund Rate Suddenly Matters Again
Let’s be honest – the last couple of years have been a roller-coaster for anyone trying to make their savings work harder. When the Bank of England pushed the base rate to 5.25%, even Premium Bonds looked a bit lacklustre at times. Many people cashed in bonds to chase 5% plus in easy-access accounts or short-term fixed rates.
Fast forward to today and the landscape feels different. Markets now fully expect the base rate to be cut again in December, possibly February too, and keep drifting lower through 2026. The easy 5% accounts are already disappearing. In that environment, the tax-free, 100% secure prize draw of Premium Bonds starts looking attractive again – if the prize fund rate is competitive.
Right now it sits at 3.60%, down from 4.65% at the peak. That’s still better than most instant-access accounts once you factor in the tax-free prizes and capital security, but it’s hardly setting pulses racing. The question everyone is asking is simple: will NS&I nudge it higher to hit that £13 billion target?
What History Tells Us About Funding Targets
NS&I has form here. When the Treasury leans on them to raise serious cash, rates tend to move – sometimes quite sharply.
Remember spring 2023? They launched the one-year Guaranteed Growth Bond at 6.20% – the best part of a full percentage point above anything else on the market. It hoovered up billions almost overnight. When they need money, they’re not shy about paying for it.
True, Premium Bonds work differently from normal savings accounts. The prize fund rate is effectively the interest rate, just paid out as tax-free prizes rather than guaranteed interest. But the principle is the same: make the product more attractive and the money rolls in.
“When the funding target rises, NS&I tends to respond in the only way it really can: by making its products more appealing.”
– Laura Suter, director of personal finance at a major investment platform
She’s not wrong. I’ve watched this pattern play out for years. Higher target = better rates. It’s almost that simple.
The British Savings Bonds Clue
Actually, we’ve already seen the first hint that NS&I is prepared to pay up. Earlier this month – literally the day after the Bank of England held rates – they increased rates on their new British Savings Bonds range.
- One-year issue went from 4.00% to 4.20%
- Two-year from 4.10% to 4.20%
- Three-year from 4.05% to 4.20%
- Five-year from 4.00% to 4.15%
These aren’t market-shattering rates, but they’re noticeably above where many banks are pricing similar products right now. It’s a clear signal that NS&I is already in “we need deposits” mode.
Premium Bonds are the flagship product – the one most likely to pull in serious volume if the prize rate moves even 0.2 or 0.3 percentage points. My gut feeling? They’re holding that card for now, but it’s very much on the table.
When Might We See a Change?
NS&I announces Premium Bonds prize fund changes at the start of each month, with the new rate applying from the following month. The next announcement is due around the end of December for a February start.
That timing would make sense. By then we’ll know whether the Bank of England cut rates in December, and the January sales season will be over – traditionally a time when people have spare cash to save again after Christmas spending.
If I had to bet, I’d say there’s a reasonable chance of a small increase – perhaps to 3.80% or even 3.90% – early in the new year. Anything higher would be a bonus, but even a modest lift would improve the average return and, crucially, remind people that Premium Bonds are still worth considering.
The Counter-Argument: Falling Market Rates
Of course, it’s not all one-way traffic. The broader direction for interest rates is downward. Swap rates – which banks use to price fixed-rate savings products – have been falling for months. Many analysts expect the base rate to be 3.5% or lower by the end of 2026.
In that world, a 3.60% prize rate starts looking pretty decent, especially when you remember prizes are tax-free and your capital is government-backed. Push it much above 4% and NS&I risks looking expensive compared to what it costs the Treasury to borrow directly.
“We may see banks lower their savings deals in 2026, so there will be pressure on the prize rate to fall. We will need to wait and see whether the need for fundraising trumps this.”
– Mark Hicks, head of active savings at a leading investment platform
He’s right to highlight the tension. NS&I has to balance two competing objectives: raising the money the government needs, and doing it at a price that doesn’t distort the wider savings market too much.
What Should Savers Do Right Now?
If you already hold Premium Bonds, my view is simple: sit tight. You’re not earning less than you were last month, and there’s a plausible scenario where the effective rate goes up in the near future. Selling now to chase a fixed rate that might itself be cut in a few months feels like bad timing.
If you have cash on the sidelines, it’s trickier. The very best easy-access rates are still above 4.5% if you’re happy with smaller or overseas banks (protected by FSCS or equivalent schemes). But those deals are thinning out fast.
- Want absolute safety and tax-free prizes? Premium Bonds are hard to beat long-term.
- Need a guaranteed return in the short term? A one-year fixed rate around 4.7–4.9% still exists if you shop around.
- Happy with a bit of risk for potentially higher reward? The stock market has been kinder lately, though we all know that can change.
Personally, I’ve been topping up my own Premium Bonds holding gradually over the past couple of months. The combination of capital security, tax-free prizes and the chance – however slim – of a big win feels right at this point in the interest-rate cycle.
The Bigger Picture for Savers
Perhaps the most interesting aspect of all this is what it tells us about government funding. An extra £1 billion might not sound huge in the context of total borrowing, but it’s a reminder that the Treasury still relies on retail savers more than people sometimes realise.
When markets are jittery, or gilt yields spike, NS&I becomes an important safety valve. And that’s ultimately good news for us as savers – it means there will always be periods when the rates on offer are surprisingly generous.
We’re probably heading into one of those periods now. Not dramatic 6% guarantees perhaps, but enough to make government-backed, tax-free saving competitive again.
So keep an eye on the announcement at the end of December. If the prize fund rate does edge higher, it could be one of the better saving opportunities of 2026 – especially if other rates are heading south. And if it doesn’t? Well, there’s always next month. After all, that’s part of the fun of Premium Bonds – you never quite know what’s around the corner.
In the meantime, good luck with this month’s draw. Who knows – Ernie might already have your number.
