It will also improve the odds of winning a prize, the government-backed savings body says.

The odds of each £1 Premium Bond number winning a prize will change from 34,500 to 1 to 24,500 to 1.

The change to the odds will see an estimated 1.4m additional prizes paid out in the June prize draw.

The Premium Bonds prize fund rate funds a monthly prize draw for tax-free prizes. NS&I pays a yearly prize fund rate on Premium Bonds, which is equivalent to a yearly rate of interest. This equivalent amount of interest on Premium Bonds that are eligible for that month’s draw is then divided by 12 to give NS&I a prize fund for the monthly draw.

Premium Bond prizes are free of income and capital gains tax.

NS&I said the increase in the rate will ensure that Premium Bonds are priced appropriately in comparison to interest rates offered by competitors.

John Glen, economic secretary to the Treasury, said: “Premium Bonds have offered the public an alternative way to save since they were first introduced in 1956, and next week marks 65 years since ERNIE drew the first Premium Bonds prize winners.

“I’m delighted to see NS&I raise the prize fund rate on Premium Bonds, which will see an additional 1.4 million prizes worth £40 million being returned to savers each month – helping to put money in the pockets of the nation’s savers.”

NS&I is one of the largest savings organisations in the UK, offering a range of savings and investments to 25m customers. All products offer 100% capital security as NS&I is backed by HM Treasury.