Sarah Coles, head of personal finance at AJ Bell, said: “It was starting to get a bit embarrassing for NS&I to have fallen quite so far behind the more competitive accounts in the easy access market.
“Cuts in April meant Premium Bonds were paying a prize rate of just 3.3 per cent, where easy access savers can get their hands on more than 10 accounts (without restrictions on withdrawals) that pay over four per cent.
“The rise in the prize rate, and the increases to its other easy access products is NS&I playing catch up with the wider market. It did the same with its fixed rate accounts in April and has finally bitten the bullet with its easy access products today.
“NS&I has a duty to offer decent value for savers, and has a fairly stretching fundraising target of £15 billion this financial year, so it needs to work harder to win savers over.
“For huge fans of the institution, these rises may be enough, but it’s worth stressing that you can do much better in easy access accounts elsewhere.
“There’s no need to settle for less than four per cent. The Cash ISA market is also incredibly competitive at the moment, so you can do much better if you shop around.
“What happens next for Premium Bonds will depend on the wider world. War in Iran and the resulting rise in the oil price means we could see more inflation. This could keep interest rates higher for longer, which in turn would keep easy access rates higher.
“At the moment, the market is pricing in two more rate rises during the rest of 2026 – and possibly even a third. Each rise is likely to push the easy access market higher – including Premium Bonds. It means this might not be the end of the prize rate hikes.
“There will always be people drawn to Premium Bonds because of the vanishingly small chance of winning a life-changing sum of money, and for them the prize rate rising is a nice-to-have on a product they’re already committed to.
“However, if you have this money set aside for the long term, you need to bear in mind that in an average month, someone with average luck will still win nothing, so there’s a real risk of your money losing spending power after inflation.
“The Cash Junior ISA rate is now pretty competitive. If you’re opening one for an older teenager who needs the money at 18, this could be a decent option.
“However, for younger children, with a longer time-horizon, investment usually makes far more sense.
“Over the long term, investments have a far better chance of growth than cash savings and offer the opportunity to build a much more valuable nest egg for them to start adult life.”
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