£1m Premium Bond jackpot cut by £100,000 – now NS&I payout set to drop further | Personal finance | Finance

This big prize isn’t half as good as it looks, and it’s getting smaller every year. Being a premium bond millionaire through National Savings and Investments (NS&I) isn’t what it used to be.

This £1 million jackpot was set in 1994, now 28 years ago. At that time, a million was a million, but that is no longer the case today.

After inflation, the real value of this money is only £500,000, which means its purchasing power has been halved.

Inflation has eroded its value, year after year, because while the prizes have gone up, the jackpot has remained exactly the same.

Now the payment will decline at an even faster rate, with the Bank of England warning that inflation will hit 8% in October, and could even hit double digits.

If inflation hits 10%, as a growing number of analysts are now predicting, the value of that £1m payment will be reduced by £100,000 in today’s money.

Compared to what people could expect in 1994, it will only be worth £450,000.

The longer NS&I fails to increase the jackpot, the less it will be worth. Especially if inflation remains high for an extended period.

It’s a real blow to loyal Premium Bond customers, says Sarah Coles, senior personal finance analyst at Hargreaves Lansdown.

“Winning a million pounds would still be life changing, but for many people it wouldn’t mean a life of luxury.”

In the nearly 30 years since the introduction of the £1million Premium Bond jackpot, inflation has eroded the prize’s purchasing power, she says.

“So if you feel like giving up your job, buying your dream house and traveling the world, your jackpot might not stretch as far as you think.

READ MORE: State pension to reach £10,600 a year – Sunak faces triple lockdown decision

As inflation rises, the purchasing power of the silver price is eaten away at a faster rate, so it will shrink and shrink, Coles adds.

“To add insult to injury, the cost of investing your money in premium bonds also increases. There is no interest on premium bonds, so the money released into the bonds also lose money after inflation.

The higher the inflation, the faster the value of your bet will drop, unless you win prizes regularly, adds Coles.

“If you were to set aside £1,000 today, inflation would be 10%, then a year later your money would have the purchasing power of £900.”

More than 22 million savers hold premium bonds, and Coles says most will continue to do so even as the jackpot erodes.

DO NOT MISS :
Pensioners face £1,000 pay rise after interest rate hike [LATEST]

Mum who eats on £10 a week details Aldi shop and seven-day meal plan [REVEAL]
NatWest offers a ‘tempting’ 3% interest rate and the chance to save more [LATEST]

“A million pounds may not be what it used to be, but it’s still the kind of money we dream of earning.”

A premium bondholder can expect to win prizes equal to one percent of their stake each year, which is still competitive with most savings accounts.

However, that could soon change unless he raises the prize rate, as a number of challenger banks and smaller building societies have started raising rates on their savings following the rate hike. BoE basis on Thursday.

Premium bonds are not suitable for those who want regular, reliable income from their savings.

They do, however, offer the thrill of a float, and that £1million is tax-free if you earn it. Plus, your stake is guaranteed by the government, making it a solid home for your money.

Myron Jobson, personal finance campaign manager at Interactive Investor, says inflation will erode all of your savings, not just premium bonds. “It’s essential that you seek the best possible return or take more risk when investing in stocks.”