Premium bonds prize pot slashed The odds of winning money from premium bonds just got worse. National Savings & Investments has announced that it is cutting the prize fund interest rate in August - from 1.5 per cent to 1.3 per cent. IN Money Matters This will affect a lot of people. In spite of the fact that premium bonds don't pay interest and there's a fairly good chance that you'll never win anything by holding them - they remain the most popular savings product in the UK. Collectively we hold £44bn of them. Premium bonds are an unusual product that act as a mixture of lottery and savings account. Instead of paying out annual interest, NS&I uses a pool of money to pay cash sums each month to winners. As interest rates have fallen so have the odds of winning a monthly prize. This cut in interest rates means that the odds of a single bond being picked in the prize draw has dropped from 24,000 to one to 26,000 to one. Premium bonds still offer tax-free returns, and they are still backed by the Treasury (and therefore 100 per cent protected) so I don't think the cut in interest will damage their popularity too much. But it's not a good indication of where savings rates are going. On Twitter: Follow Elaine Moore @ElaineDMoore This cut has been on the cards since NS&I opted to cut the returns on income bonds and other savings accounts, but it's not just about NS&I and its book balancing - this is part of a wider story about what banks are doing to savings rates. NS&I has been quite open about the fact that it doesn't want its products to look too attractive compared to the accounts available from banks and will cut returns to keep them in line with the industry. The depressing thing for savers is that we are now in an era where annual returns of 1.5 per cent are deemed too attractive.