National Savings & Investments (NS&I) has announced it will reduce rates on three savings accounts next month, including its popular Premium Bonds.

From December 20, the rates for Direct Saver and Income Bonds will decrease, while the Premium Bonds prize fund rate will drop from 4.40% to 4.15%.

In January, the Premium Bonds prize fund rate will fall further to 4% in response to changes in the savings market. However, the odds of winning will remain unchanged at 22,000 to one.

Andrew Westhead, NS&I retail director, explained: “We carefully review our savings rates in response to changes in the broader market.

“These adjustments help us meet our Net Financing target while balancing the interests of our savers, taxpayers, and the wider financial services sector.”

Despite the rate changes, NS&I assured savers that Premium Bonds remain a popular choice, backed by the 100% Government guarantee. The January 2025 draw is set to deliver over 5.8 million tax-free prizes worth more than £431million.

The interest rate for Direct Saver will fall to 3.50% gross/AER, and Income Bonds will drop to 3.44% gross/3.49% AER.

NS&I is one of the largest savings organisations in the UK, offering a range of savings and investments to 25 million customers.

The Bank of England reduced the central Base Rate from 5% to 4.75% in November due to sustained lower-than-target inflation. Savings account interest rates have since been sent on a downward trend, with average returns falling month-on-month.

According to Moneyfactscompare’s research, the average easy access rate has dropped to 3.03% this month while the average one-year fixed bond rate fell to 4.24% – its lowest level since June 2023.

Rachel Springall, finance expert at Moneyfacts, said: “In recent weeks the swap rate market has been volatile, which will cause providers to consider their pricing, such as with fixed bonds.

“This emphasises the necessity for savers to move quickly if they want to secure a lucrative guaranteed return on their cash.”