The government’s savings arm – NS&I – has confirmed it will make changes to Premium Bonds which come into effect from June’s draw.

Premium Bonds aren’t like normal savings accounts as they don’t pay interest. Instead, the interest that should be paid is used to fund a monthly prize draw. This will rise from 1% to 1.4% tax-free.

The odds of each £1 Premium Bond number winning a prize will also change from 34,500-to-one to 24,500-to-one.

This means an extra 1.4 million prizes worth £40m will be paid out from the June draw.

‘National treasure’

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Premium Bond savers have a reason to celebrate on the eve of the bonds’ 65^th birthday. After lagging the savings market for months, it has boosted the prize rate back to 1.4%, and is living up to its reputation as a national treasure.

“This is particularly welcome, because despite falling well behind competitive savings accounts, the Bonds were still attracting plenty of cash at the lower rate. Between the April and May draw, the number of bonds rose by over 655 million, which means £655 million more for NS&I coffers.

“However, NS&I has delivered on its promise to savers to balance their needs with those of taxpayers, and it was only right that rates rose to reflect market movements elsewhere.

“It’s welcome news for more than 21 million loyal savers who hold the bonds. They’re attracted by the chance of a life-changing win, the fact that prizes are tax-free and the fact that money in Premium Bonds is backed 100% by the treasury. However, a competitive prize rate is the least they deserve.”

Coles added that even after the prize rate changes, there will still only be two million pound prizes, so the odds of winning a million haven’t improved.

“In fact as more people buy more bonds, unless the number of million pound prizes increases, the odds will get worse.”

Economic secretary to the treasury, John Glen, said: “Premium Bonds have offered the public an alternative way to save since they were first introduced in 1956, and next week marks 65 years since ERNIE drew the first Premium Bonds prize winners.

“I’m delighted to see NS&I raise the prize fund rate on Premium Bonds, which will see an additional 1.4 million prizes worth £40 million being returned to savers each month – helping to put money in the pockets of the nation’s savers.”

NS&I chief executive, Ian Ackerley, said: “The new prize fund rate ensures that Premium Bonds are priced appropriately when compared to the interest rates offered by our competitors. It also ensures that we continue to balance the interests of savers, taxpayers and the broader financial services sector.

“Premium Bonds customers will benefit from the chance to win a further 1.4 million tax-free prizes each month, as well as the peace of mind that customers get with 100% of their NS&I savings being backed by HM Treasury.”

Premium Bonds prizes are free of income tax and capital gains tax.