Premium Bonds: NS&I slashes interest rates – how will changes affect Premium Bonds prizes?

NS&I announced interest rate reductions across its fixed and variable savings products yesterday, with the changes effective from May 1, 2020. The announcement said that the changes would ensure NS&I’s interest rates are positioned appropriately against those of its competitors, and help NS&I to strike a balance between the needs of its savers, taxpayers and broader market stability.


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Ian Ackerley, NS&I Chief Executive, said: “Reducing interest rates is always a difficult decision.

“We need to ensure our interest rates are set at an appropriate position against those of our competitors.

“These changes reflect NS&I’s requirement to strike a balance between the needs of our savers with taxpayers and the stability of the broader financial services sector.

“We believe our new rates offer our customers a fair return and the assurance of the 100% HM Treasury guarantee on all their holdings with NS&I.”

The changes mean the Premium Bonds prize fund rate will reduce by 10 basis points – from 1.40 percent to 1.30 percent.

Following the news, savers who have Premium Bonds may wonder what this means for them when it comes to the monthly prize draw.

The odds of any £1 Bond number winning any prize will decrease from 24,500 to one to 26,000 to one.

These changes wil be effective from the May 2020 prize draw.

NS&I has explained what this is expected to mean for the value of Premium Bonds prizes.

This includes the number of prizes in May 2020 being estimated to reduce.

It’s expected that there will still be two jackpot winners of £1million in May 2020.

However, the number of £100,000 prizes is estimated to be five, while it was six in February this year.


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How will NS&I’s variable rate savings products change?

The Direct Saver has a current rate of 1.00 percent gross/AER.

This is set to reduce by 30 basis points, with the interest rate from May 1, 2020 being 0.70 percent.

The product Investment Account, which has a current rate of 0.80 percent gross/AER will decrease by 20 basis points to 0.60 percent gross/AER.

Meanwhile, Income Bonds – currently at 1.15 percent gross/1.16 percent AER – are set to change by -45 basis points.

The interest rate from May 1, 2020 for this product will become 0.70 percent gross/0.70 percent AER.

Fixed term savings products are also set to reduce.

NS&I said that customers holding Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates and whose investments mature on or before June 1, 2020 and who automatically renew into a new Issue of the same term, will receive the previous, higher interest rate.

However, any customers who choose to renew into a new Issue but a term of a different length, will receive the reduced interest rate effective from May 1, 2020.

Current holdings will be unchanged until they mature and customers do not need to take action now, NS&I said, adding that they would write to all holders of Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates at least 30 days before the end of their term.

Founder and MD of Sourced Capital, Stephen Moss, commented: “Yet another blow for those trying their best to accumulate any kind of savings pot and perhaps the final nail in the coffin for the vast array of savings based products available to the consumer, as more and more are opting to move away from these traditional options due to the pitiful returns they now provide.

“While extremely low interest rates are all well and good when it comes to stimulating spending to boost the economy, they have created a very tough landscape for those that are unable to tuck away enough money to spend in the first place.

“The Bank of England must do something to encourage more people to accumulate a stable financial foundation for their future and while we certainly don’t want a return to the double-digit rates of the eighties and early nineties, many will be hoping for a boost via an increase in interest rates in next month’s budget.”

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