RATES CUT SEES PREMIUM BONDS SUFFER

More than 20 million people own the Treasury-backed tax-free bonds.

Investors use the bonds like like a savings account where money can be put in and withdrawn as desired.

"Interest" is decided by a monthly prize draw, with possible winnings ranging from £50 to £1 million.

The size of the prize fund is allocated as the equivalent of one month's interest on the total value of eligible bonds.

But the Bank of England base rate has been slashed three times in as many months, from 5% at the beginning of October to 2% last month.

The prize fund over the past year has halved from £114 million last January to £57 million this month.

Over the past year the total number of prize winners has dropped from 1.7 million to 1.1 million.

Last January 531 people won a prize above £1,000 compared with 26 last month.

Angela Mason, a spokeswoman for National Savings and Investments, which runs the scheme, said: "Given the historically low levels base rate has now reached, we are looking closely at all of the options available to us so we can make the right decision for all Premium Bond holders."