National Savings & Investments (NS&I) has increased rates on Premium Bonds and other savings products, but they remain below the best-paying ISAs and savings accounts available in the market.
Premium Bonds Prize Rate Increase
From July, the Premium Bonds prize rate will rise to 3.8 per cent, following a reduction from 3.6 per cent to 3.3 per cent in April. The odds of winning have also improved, dropping from 23,000 to one to 22,000 to one for each bond held. This means an additional 322,000 prizes will be awarded from the £60 million prize fund.
While financial experts welcomed the move, they noted that NS&I still lags behind competitors for savers seeking returns on their cash. Sarah Coles, head of personal finance at AJ Bell, commented: “It was starting to get a bit embarrassing for NS&I to have fallen quite so far behind the more competitive accounts in the easy access market. Cuts in April meant Premium Bonds were paying a prize rate of just 3.3 per cent, where easy access savers can get their hands on more than ten accounts without restrictions on withdrawals paying over 4 per cent.”
Other NS&I Rate Changes
NS&I customers will also see increases to variable interest rates on other savings products: Direct Saver (3.45 per cent), Income Bonds (3.45 per cent), Direct ISA (3.8 per cent), and Junior ISA (3.7 per cent). However, the best deals on the market still offer around 4.5 per cent, with several regular savers and fixed-term deals paying even higher rates.
Andrew Westhead, NS&I Retail Director, said: “We regularly review our products to ensure they reflect current market conditions, and we're pleased to be able to improve rates across five variable savings accounts today. This reflects changes in the wider savings market and helps ensure we meet our Net Financing target.”
Comparison with Top Accounts
Rachel Springall at Moneyfactscompare.co.uk noted: “Savers who prefer to keep their pots with NS&I will be delighted to see rates increase, but it is worth noting that the top rates on the market are over 4 per cent on easy access accounts, with some top fixed accounts paying well over 4.50 per cent. However, there is no denying that some savers will forgo higher rates to have their money placed with the brand, as it is 100 per cent backed by HM Treasury.”
The savings market is currently in flux. Since the Iran war began, expectations have been that Bank of England interest rates might need to rise, which could mean better rates for savers but more expensive mortgages for borrowers. The market anticipates two or perhaps three rate rises this year.
Premium Bonds Appeal and Drawbacks
Ms Coles added: “There will always be people drawn to Premium Bonds because of the vanishingly small chance of winning a life-changing sum of money, and for them the prize rate rising is a nice-to-have on a product they’re already committed to. However, if you have this money set aside for the long term, you need to bear in mind that in an average month, someone with average luck will still win nothing, so there’s a real risk of your money losing spending power after inflation.”
A recent Freedom of Information request revealed that fewer than 1 per cent of Premium Bond prizes go to those holding less than £1,000. Greig Bingham at independent financial services consultancy Broadstone said: “What is also notable is the shift in the make-up of prizes. While the total number of prizes is increasing significantly, the proportion of £25 prizes – the smallest available – has fallen from 47 per cent of all prizes to 37 per cent. That means a greater share of the prize fund is being directed towards higher-value prizes, which could make the product feel more rewarding for savers fortunate enough to win.”
In March, NS&I admitted it owed savers hundreds of millions of pounds in compensation due to admin errors on 37,000 accounts.
