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Premium Bond prize chances to be cut, NS&I says

Ernie choosing Premium Bond winners in 1957
Image caption The Premium Bonds system started in 1956 and was aimed at ordinary wage earners

The chances of winning a prize in the UK Premium Bonds draw will be reduced from 1 August, as savings rates continue to fall.

National Savings and Investments (NS&I) will cut the prize fund, arguing that it must balance the needs of savers, taxpayers, and the savings sector.

There will be only three prizes of £100,000 each month, rather than five. Other prize odds will also fall.

About £44bn is invested in Premium Bonds by 21.6 million people.

The number of people who have invested in Premium Bonds has fallen by about 1.4 million in the last 10 years, but the amount invested has more than doubled, excluding the effect of inflation.

Millions in prizes

Investors in Premium Bonds forgo interest in order to have the chance to win tax-free prizes.

However, following the changes in August, the odds of each £1 Premium Bond number winning a prize will change from 24,000 to one, to 26,000 to one.

Some 1.7 million tax-free prizes will still be paid each month, totalling £49m, from August. The total value of prizes at present is £57m.

NS&I said it needed to make the changes owing to its unique position being backed by the Treasury. It must reflect the market, and not be too competitive or out of line with the rest of the market.

"Rates across the savings market have fallen over recent months, resulting in NS&I savings being increasingly attractive," said Jane Platt, NS&I chief executive.

"In light of our framework to balance the needs of our savers, taxpayers and the stability of the broader financial services sector, we now need to reduce the Premium Bond prize fund rate."

Wins range from £25 to a single jackpot of £1m. The highest award will not be affected by the change in August.

Harold Macmillan announced the launch of Premium Bonds in the 1956 Budget, in a bid to encourage saving and reduce inflation.

The draw is made by Ernie - Electronic Random Number Indicator Equipment - in a secure location only accessible by a handful of NS&I employees.

The computer takes two-and-a-half hours to make the random monthly draw of the tax-free prizes.

Since April, customers have no longer been able to buy Premium Bonds in cash over the counter at the Post Office, as services continue to move online.

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