My Premium Bond fears have come true – this is who I think should cash out:

Last month, I warned the Premium Bonds prize fund rate was living on borrowed time.

Now, as feared, National Savings & Investments has cut its underlying rate from 3.6pc to 3.3pc from the April draw.

The prize fund rate – the typical return received by a Premium Bond holder – is now at its lowest level in three years.

There’s also less chance of winning a prize as the odds become worse – up from 22,000 to one to 23,000 to one.

Savers have been pouring money into Premium Bonds, which pay no interest but instead dish out prizes from money held in them.

They are loved by 23million Britons for the thrill of the lottery-style monthly prize draw with its promise of two £1million jackpots for two lucky savers.

In January, I warned the move was inevitable as Premium Bonds have soared in popularity while rates from other savings providers tumbled. That has put NS&I in danger of overshooting its target for this financial year.

The Treasury has tasked it with bringing £13billion into the Government’s coffers in this financial year, which runs until the end of March. It also means NS&I has been hoovering up money that could go to other savings providers, and that could in turn be used to fund mortgages.

It’s the first cut since last August, despite the Bank of England cutting the base rate twice in that time from 4.25pc to 3.75pc.

While rivals have slashed rates, the Premium Bond rate held firm – until now, of course. From April, the number of prizes will fall by nearly a quarter of a million to just under six million.

If you win, you are most likely to bag a £25 prize, and the number of these small prizes dished out will rise by nearly 163,000 to 2.8million.

Meanwhile the number of larger prizes will drastically fall. NS&I expects to pay out nearly 200,000 fewer £100 and £50 prizes, while the number of big value payouts will also drop. There will be 1,310 fewer top prizes between £10,000 and £100,000.

The only prize value not affected is the £1million monthly jackpot paid out to two lucky winners.

Best savings rates: Check the top deals in our tables compiled by Sylvia Morris 

Who should keep their Premium Bonds?

So, should you stick or twist with Premium Bonds?

For each £10,000 you hold in Premium Bonds, you give up £400 a year in interest that you could be earning from a top-paying easy-access account.

There is no guarantee you will win any prizes on your Premium Bonds but any that you do win are free of tax. That’s appealing when millions of savers are being dragged into the tax net on the interest they earn from their ordinary savings accounts.

If you have the maximum £50,000 holding in Premium Bonds, you could be earning £2,000 a year if you put the money into an easy-access account that pays 4pc.

Basic rate taxpayers can earn £1,000 in savings interest before paying tax at their marginal rate, known as their personal savings allowance. This means that on £50,000 they would take home £1,800 after tax is deducted.

Premium Bonds have a greater appeal for higher rate taxpayers, who get a £500 personal savings allowance. After tax, they would keep just £1,400 in interest on the £50,000 savings pot.

This is how much you need to win on Premium Bonds each year to break even.

I shall hang on to mine (I don’t hold the maximum £50,000), at least for the time being as I expect rates on easy-access accounts to fall again soon, along with the Bank of England base rate.

But if I hadn’t used my Isa allowance for the year, I would consider transferring my holding to these tax-free accounts. It would make more financial sense – you can bag a solid interest rate and your earnings are tax-free.

But the lure and hope of winning a prize along with the luck of the draw and the fear of missing out can override this – even though more than 14million holders have never won a single one.

Last year a lucky winner from Cleveland – who had just £100 in Premium Bonds – won the jackpot, having bought the prize bond just two years earlier.