Savers have been handed a welcome boost today after National Savings & Investments (NS&I) announced a surprise hike to the Premium Bond prize rate.
Starting from the next prize draw on 3 July 2023, the Premium Bond rate will jump sharply from 3.3% to 3.7%, meaning savers will be in line to win more high-value prizes.
For example, the total number of £100,000 prizes will increase from 63 to 71 and £50,000 prizes will rise from 125 to 141 (see the next section for a full breakdown of prizes).
There will still only be two £1 million jackpots, however.
Remarkably, it means the Premium Bond prize rate will have been hiked six times in little over a year - back in May 2022, it stood at just 1%.
While these increases need to be seen in the context of inflation standing at a whopping 8.7%, it's nonetheless a welcome change that could benefit many thousands of savers.
The decision to hike rates is somewhat unexpected.
Given that savers have been piling funds into NS&I at a staggering rate, there was talk that some savings rates might actually have to be cut to ease demand for its products.
However, the broader savings market has seen dramatic increases in recent weeks as the Bank of England continues its trick of repeatedly and rapidly hiking the Base Rate in a bid to quell soaring inflation.
As a result, the Premium Bond rate has gone from market-leading as recently as March to nowhere near the top in June (more on this in the next section).
Clearly, NS&I has felt the need to respond to these changes with another rate hike to its headline savings product.
June 23 prize values
June 23 prize numbers
July 23 prize values
July 23 prize numbers
£1,000,000
2
£1,000,000
2
£100,000
63
£100,000
71
£50,000
125
£50,000
141
£25,000
252
£25,000
284
£10,000
627
£10,000
707
£5,000
1,257
£5,000
1,417
£1,000
13,361
£1,000
14,960
£500
40,083
£500
44,880
£100
1,421,012
£100
1,744,226
£50
1,421,012
£50
1,744,226
£25
2,163,534
£25
1,503,501
Total
£334,047,650
Total
5,061,328
Total
£374,026,425
Total
5,054,415
When announcing the latest hike to 3.7%, NS&I said the changes would ensure that NS&I's products are priced appropriately when compared to the rest of the savings market.
"They also ensure that NS&I continues to balance the interests of savers, taxpayers and the broader financial services sector," it added.
So how attractive are the bonds in comparison to other 'traditional' savings accounts?
Obviously, most savings accounts don't work like Premium Bonds as they pay a set rate to all savers rather than handing out prizes.
Perhaps the best comparison is easy access savings accounts, which allow you to deposit and withdraw money in a broadly similar fashion.
The best such account currently on the market is from Coventry Building Society and offers a 4% rate, putting it comfortably ahead of Premium Bonds.
However, that account is limited to a maximum of four withdrawals per month.
If you want to access your monthly frequently, then the top account with unlimited withdrawals is from Shawbrook Bank, which pays 3.91%, which is still well ahead.
If you're willing to lock your money away for a year - which is admittedly far more restrictive than Premium Bonds - you could earn a significantly better rate, with the top one-year fix from Ahli United Bank paying 5.7%.
How much could I earn on my cash?
To put into context the difference in rates, let's look at how much interest you're likely to earn on the above products.
Assuming you deposit £50,000 in Premium Bonds (the maximum amount allowed) you would earn £1,850 with average luck.
Put that same sum with Shawbrook (3.91%) and you'll earn £1,955, while the Coventry account (4%) will pay out £2,000 in interest.
Finally, if you locked your money away for one year with Ahli (5.7%) you would walk away with £2,850 - that's a whopping £1,000 more interest than with Premium Bonds.
Obviously, none of these 'traditional' accounts work exactly like Premium Bonds, which give you the chance of winning up to £1 million each month.
So you need to decide what's more important to you: the excitement of potentially bagging a huge sum, or the security of knowing your money is doing better than the 'average' Premium Bond punter.
* From Jul 2023 ** Assuming average luck
* From Jul 2023
** Assuming average luck
More on loveMONEY.com: The top savings rates right now
More on loveMONEY.com:
The top savings rates right now
Are Premium Bonds worth it?