NS&I Cuts Rates Again — Are Premium Bonds Still Worth It in 2026?
NS&I has confirmed rate cuts on two of its most popular savings accounts from 12 February 2026. Direct Saver drops to 3.05% and Income Bonds to 3.05% AER — the first change since March 2025. But the Premium Bonds prize fund rate remains untouched at 3.60%. Here's what it means for your savings.
What's Changing
| NS&I Product | Old Rate | New Rate (12 Feb) | Change |
|---|---|---|---|
| Direct Saver | 3.30% AER | 3.05% AER | -0.25% |
| Income Bonds | 3.26% gross / 3.30% AER | 3.01% gross / 3.05% AER | -0.25% |
| Premium Bonds | 3.60% prize fund rate | 3.60% prize fund rate | No change |
| Direct ISA | 3.50% AER | 3.50% AER | No change |
NS&I also cut British Savings Bonds fixed rates in January 2026: the 1-year bond dropped from 4.20% to 4.07% AER, and 2-year bonds from 4.10% to 3.98%. These cuts only affect new purchases — existing fixed-term bondholders keep their original rate.
Why Is NS&I Cutting Rates?
The cuts follow the Bank of England's December 2025 decision to reduce the base rate to 3.75%. As a government-backed savings provider, NS&I has a financing target to hit — it needs to attract a certain level of deposits without offering rates so competitive that they destabilise the wider savings market. When the base rate falls, NS&I typically follows.
Sarah Coles, head of personal finance at Hargreaves Lansdown, noted that the high street banks had already been cutting easy access rates, so NS&I's move was expected. The Direct Saver at 3.05% is now well below the best easy access rates available from other providers, which are still offering around 4.00%.
How NS&I Savings Now Compare
| Account Type | Rate | After Tax (Higher Rate) | After Tax (Basic Rate) |
|---|---|---|---|
| Premium Bonds (prize fund rate) | 3.60% | 3.60% (tax-free) | 3.60% (tax-free) |
| NS&I Direct ISA | 3.50% | 3.50% (tax-free) | 3.50% (tax-free) |
| NS&I Direct Saver | 3.05% | 1.77% | 2.44% |
| Best easy access (market) | ~4.00% | 2.32% | 3.20% |
| NS&I 1-year fixed bond | 4.07% | 2.36% | 3.26% |
Note: Higher rate (42%) and basic rate (20%) calculations use the new Autumn Budget 2025 rates effective from April 2026. Figures assume Personal Savings Allowance has been used. Use our Comparison Tool for your exact situation.
💡 The Tax-Free Advantage Is Growing
As the Budget has increased the savings tax rates (22% for basic, 42% for higher, 47% for additional rate from April 2026), the gap between Premium Bonds' tax-free returns and taxable savings is widening. A higher-rate taxpayer would need to find a savings account paying approximately 6.21% to match Premium Bonds' 3.60% on a net basis — and no easy access account comes close to that.
What This Means for Different Savers
Higher-Rate and Additional-Rate Taxpayers
Premium Bonds were already the clear winner for higher-rate taxpayers, and these cuts make the case even stronger. With the Direct Saver now at 3.05% and about to be taxed at 42%, the after-tax return falls to just 1.77%. Even the best easy access savings account at around 4.00% only delivers about 2.32% after tax. Premium Bonds' 3.60% prize fund rate is entirely tax-free.
Basic-Rate Taxpayers
The picture is more nuanced for basic-rate taxpayers. If you still have Personal Savings Allowance (PSA) remaining — £1,000 for basic-rate taxpayers — then savings interest up to that limit is tax-free, making a 4.00% savings account genuinely better than Premium Bonds. Once your PSA is used, Premium Bonds become more competitive.
NS&I Direct Saver Holders
If you're holding cash in an NS&I Direct Saver for the government guarantee, you should seriously consider moving some or all of it to Premium Bonds instead. You get the same HM Treasury backing, but with the prize fund rate at 3.60% compared to the Direct Saver's 3.05% — and the prizes are tax-free on top.
🔄 Switching Is Easy
NS&I lets you switch from a Direct Saver directly to Premium Bonds online without having to log in. Visit nsandi.com and look for the "Switch to Premium Bonds" option. The minimum switch is £25 and you can move up to £50,000 (the Premium Bonds maximum).
What About Premium Bonds Rates — Could They Be Cut Next?
The Premium Bonds prize fund rate was last cut in August 2025, from 3.80% to 3.60%. NS&I has not signalled any further changes, but it's worth noting the pattern: when the base rate falls, Premium Bonds rates tend to follow eventually, typically with a lag of several months.
For now, 3.60% tax-free remains highly competitive. Even if NS&I were to cut to, say, 3.40%, Premium Bonds would still beat most taxable savings accounts on an after-tax basis for higher-rate taxpayers. The key is to make hay while the sun shines — the current rate is still historically strong.
What Should You Do?
✅ Actions to Consider
- Check if your NS&I Direct Saver money would work harder in Premium Bonds — use our Comparison Tool with your tax rate
- If you're a higher-rate taxpayer with savings above your PSA limit, Premium Bonds should be near the top of your list
- Consider locking in fixed rates while they're still above 4% if you don't need immediate access
- Review your ISA usage — the NS&I Direct ISA at 3.50% is still tax-free and unchanged
- Don't leave large sums in the Direct Saver at 3.05% if you have better options
Frequently Asked Questions
Does the rate cut affect existing Direct Saver money?
Yes. Both the Direct Saver and Income Bonds are variable-rate products, so the new lower rate applies to all existing balances from 12 February 2026, not just new deposits.
Has the Premium Bonds odds changed?
No. The odds remain at 22,000 to 1 per £1 bond per month. The prize fund rate is still 3.60%, unchanged since August 2025.
Is my money still safe with NS&I?
Absolutely. NS&I is backed by HM Treasury, making it the safest place to hold cash in the UK. Unlike banks and building societies (which are protected up to £120,000 per person by the FSCS), NS&I guarantees 100% of your savings with no upper limit.
Should You Switch to Premium Bonds?
Compare Premium Bonds against savings accounts at your tax rate to see which gives better returns.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Savings rates change frequently — verify current rates before making decisions. Tax rates referenced are based on Autumn Budget 2025 announcements for the 2026/27 tax year. Consider your personal circumstances and consult a financial advisor for personalized guidance. Information accurate as of February 2026.