A money expert has issued a Premium Bonds warning after prize chances were increased - with new ISA rules sparking the change. Savings giant NS&I (National Savings and Investments) said the odds will shorten to 21,000 to one, from 22,000 to one from September.

The prize fund rate will increase for the September draw to 4.35%, up from 3.80%. Compared with the August draw, it is estimated there will be more than 308,000 further prizes in September, with the prize pot increasing by around £63 million to more than £497 million.

One expert said the improvement in odds came as many move money into ISAs before the cash limit changes for those under 65. The annual contribution limit for Cash ISAs will drop from £20,000 to £12,000 for anyone aged 64 or under from next April.

Sarah Coles, head of personal finance at AJ Bell, said NS&I has had to act after fundraising fell short. She said: “This fundraising shortfall is why we saw the raft of rate rises last week – plus a Premium Bond prize hike in both July and September. NS&I is playing catch-up and needed to do something to move the dial.

“Part of the issue is the Cash ISA effect. The announcement that the Cash ISA allowance would drop from £20,000 to £12,000 for those under the age of 65 from next April has prompted a dash for Cash ISAs, which means it soaked up much of the available savings in this period – including a £12 billion bump in April.

“It’s ironic that a move that the government hoped would make Cash ISAs less popular has transformed them into a money machine.

“NS&I is also suffering from the fact that the savings market has been so competitive in recent months, with online banks jostling to offer the best rate on the market.

“For much of this period its offerings have fallen well short of the most generous deals, and it has paid the price. We’ll have to wait and see whether this is enough to turn the tide, or whether there could be more rises on the cards.”

There are expected to be 12 additional £100,000 prizes, 27 more £50,000 prizes and an extra 51 £25,000 prizes next month. The estimated number of £1 million prizes the 22 million-plus Premium Bond holders can potentially win will remain the same, at two.

While the number of prizes is increasing, there will be fewer chances to win small £25 prizes in September, with the estimated number of prizes at this level dropping from 2,289,959 to 1,717,659.

Andrew Westhead, NS&I retail director, said: “Not only is NS&I boosting Premium Bonds from September, but from today we are also increasing interest rates for our British savings bonds, plus our direct saver and income bonds.

“This is to ensure we reflect current market conditions and help to meet our net financing target.

“This is the second time this year we have been able to increase Premium Bonds prize fund rate and shorten the odds.

“The September Premium Bonds draw is now expected to have more than 6.5 million tax-free prizes worth over £497 million.

Premium Bonds continue to offer over 22 million savers of all ages the monthly excitement of tax-free prizes with 100% security backed by HM Treasury, and the flexibility to withdraw at any time.”

NS&I’s variable rate direct saver and income bonds accounts have increased from 3.45% AER (annual equivalent rate) to 3.75% AER. Both new and existing customers with maturing British savings bonds will also see improved rates.

Ms Coles described NS&I’s new one-year bond rate as “unusually competitive” and close to the most competitive options, adding: “Given that this is the most popular term to fix your savings over, it’s clearly hoping to persuade rate-chasers to make a small compromise in order to secure a rate that’s 100% backed by the Treasury.

“There are better deals on offer elsewhere – especially if you are fixing for longer – so if the rate is the most important thing to you, you can find a more rewarding home for your money.

“However, getting so close to the competitive deals could be enough to tempt some savers into the NS&I fold.”

Ms Coles added that banks generally have been “competing hard” for savers’ cash, saying: “NS&I is pushing for a net financing target of £15 billion this financial year. So far inflows haven’t been much to write home about.”

She said the provider therefore “had to do something fairly dramatic at this stage”.

Caitlyn Eastell, a personal finance analyst at Moneyfactscompare.co.uk, said of Premium Bonds: “Despite the improved odds, they are a game of chance and the 4.35% shouldn’t be mistaken for a headline rate.

“With the cost of living continuing to weigh on household budgets, it’s understandable savers may not want to leave their returns to chance.

“The best easy access Isas pay over 4.50% and returns could be even higher if they’re willing to lock away their cash.”