Premium Bonds rate cut scrapped: NS&I drop plans to slash prize rate fund

National Savings and Investments, a savings company backed by the Treasury, had planned to reduce interest rates on products such as Premium Bonds, however abandoned this action. The company said the decision was taken in a move to protect and support savers during the coronavirus pandemic, which it described as an “unprecedented time”. From May 1, 2020, NS&I had planned to reduce its interest rates across fixed and variable savings products, including Premium Bonds.

If the plans had gone ahead, interest rates would have dropped by 10 basis points – from 1.40 percent tax-free, to 1.30 percent tax-free.

The odds of any £1 Bond number winning any prize will not reduce to 26,000/1 and will now remain at 24,500/1.

NS&I’s announcement will provide some relief to savers, particularly given the fact the Bank of England’s base rate currently stands at a minuscule 0.1 percent. 

The company says savers will not have to take any additional action at this time, but can reach out if they need help in managing their savings urgently. 

The now-abandoned plans from NS&I were announced in a measure the savings company hoped would re-balance the interests of savers and taxpayers, while also future proofing the financial services sector.

However, NS&I are now keeping rates static until the pandemic comes to an end. 

Fixed term products, though, will continue to go ahead as planned, and will become effective from May 1, 2020.

Financial journalist and money saving expert Martin Lewis responded to the news stating: “Even a headline rate of 1.4 percent tax-free on the Premium Bond prize fund doesn’t make it a no-brainer for savers. While state-owned NS&I is known as a bastion of savings safety, unless you’ve more than £85,000 saved the protection you get isn’t materially better than a normal UK regulated savings account.

State Pension: Divorcees entitlement upon split from spouse [INSIGHT]
Universal Credit payment: Fears claimants will not get money on time [ANALYSIS]
Energy bills: Millions owed money back – could you get refund? [INSIGHT]


  • Tax year 2020/2021 changes you need to know about

“According to our Premium Bond Probability Calculator, those with smaller amounts and typical luck (technically based on the median average) are unlikely to win more than the top easy access accounts over a year. To do that you’d need to have closer to the maximum £50,000 in – and even then statistically you’d need better than typical luck to win close to the interest from the top 1 year fix savings.

“So based on pure financial logic Premium Bonds don’t win for most. But if you are happy to have a little bit of a flutter and enjoy, then at the moment with the rate riding relatively high, it’s far from the worst thing to do with cash.”

Premium Bonds have been issued in the UK since 1956, predating the famous National Lottery draw.

They are a type of lottery bond which the government pays interest into, with a monthly prize draw providing select bondholders with a payout.

It is estimated approximately 21 million Britons own Premium Bonds, and because this is a lottery bond, the more you buy, the greater your chances of winning. 

As NS&I is government-owned, there is no risk to any capital placed into a Premium Bond by the owner, as it will never go bust.

The organisation is supported by the Treasury, meaning any Premium Bond owner is only gambling the interest and not any other monetary funds. 

Laura Suter, personal finance analyst at investment platform AJ Bell, said of the changes: “NS&I’s U-turn on interest rates makes sense, and helps savers at a time when other banks are slashing rates and also raises vital money for the Government to fund its Covid-19 rescue efforts. 

“While Premium Bonds aren’t a guaranteed rate, and you might walk away with no interest, the ‘average interest rate’ of 1.4 percent tax-free now makes it a market leader, ahead of other easy-access savings accounts.

“The Government had previously announced plans to cut the target amount it wanted NS&I to raise in the current tax year, to reflect the fact that it could borrow money cheaper elsewhere – which would have meant further rate cuts for savers. 

“But even though that announcement only came out last month the landscape looks dramatically different now. With billions spent on funding businesses and individuals throughout the current crisis the Government needs to use all its routes to raise money.”

Source: Read Full Article