This is the sixth Premium Bonds prize fund rate hike in just over a year, after last being increased by National Savings & Investments (NS&I) in March. This time last year the rate stood at a lowly 1%.

The move means there will be more prizes worth between £50 and £100,000 in next month’s draw, fewer £25 winners and the same two £1m jackpot winners.

All-in-all, there will be £39m more in prizes up for grabs, with the total estimated value of prizes for July standing at £374m.

But there’s no change to the odds of winning which will remain at 24,000-to-one.

Premium Bonds compete in the easy access market

With the prize fund rate rising to 3.70% tax-free next month, it means NS&I has brought it back to “winning form”, according to Hargreaves Lansdown.

Sarah Coles, head of personal finance at the investment platform, said: “Premium Bonds have put on a burst of speed to catch up with the easy access market. They’d been biding their time since February, while the rest of the market pushed ahead, but this rise brings them back to winning form.”

While the best rate available on easy access accounts stands at 4%, it’s important to note that 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 the monthly prize draw.

Coles said: “It will depend on how lucky you are. The average saver with the average holding will win nothing in the average month.”

But according to Laura Suter, head of personal finance at AJ Bell, NS&I has been on a mission to draw in more money this year, and “its plan is working so far”.

In the three months to April, NS&I took in £7bn of savers’ money, with the combination of higher rates and the security of a Government-backed provider “proving to be a big draw”, Suter said. Earlier this month AJ Bell suggested that NS&I may have to pull back on some of the recent rate rises as it looks to keep within its net financing target of £7.5bn in 2023/24.

She added: “The fact remains that most people will be better opting for a standard savings account rather than Premium Bonds. With three providers offering 4% return on easy-access accounts, that’s a better bet for a guaranteed return on your cash. While Premium Bonds might make you a millionaire, they are more likely to pay out a below-market return – or nothing.”

Junior ISA rate hike

NS&I has also increased the interest rate for young savers holding its Junior ISA. The rate will increase from 3.40% to 3.65%. The change will see 89,000 youngsters under the age of 18 benefit.

This is the second interest rate increase for the JISA this year.

Coles said the JISA hike is a “brilliant boost for parents” and is “part of NS&I’s efforts to attract younger savers”.

However, according to Savings Champion data, the current top payer in the JISA tables is Coventry Building Society, offering 4.30% AER.

For Myron Jobson, senior personal finance analyst at Interactive Investor, while an increase to the rate of interest applied to the NS&I’s cash Junior ISA accounts is “good news”, he said cash JISAs are “frankly pointless” other than as an option for teenagers approaching adulthood who might shortly need to use their pot and therefore want to remove the short-term risk of a sudden loss of value.

Jobson said: “Most JISAs are going to be inherently very long term, because they cannot be accessed until the child is 18, there is ample time for short-term bumps in stock markets to be ironed out.

“While stock markets can be volatile on a day-to-day basis, a glance at history shows that they have a knack of delivering inflation-beating returns over long periods of time.”