AJ Bell’s head of personal finance says all eyes will be on Premium Bonds in the coming weeks
Premium Bond holders could see a rise in the prize rate
A financial expert says Premium Bond holders will be keeping a close eye on prize rates in the coming weeks after NS&I announced new issues of British Savings Bonds on sale with increased rates. NS&I, which is the UK Government savings bank, has launched new fixed-rate savings accounts paying up to 5.17 per cent interest.
Being Government-backed, it is also the only savings provider that secures savings in excess of £120,000 – which is the maximum protected by the FSCS Deposit Protection Limit. The added protection combined with the increased savings rate make it an even more attractive option for savers.
But Sarah Coles, head of personal finance at AJ Bell, says that all eyes will be on Premium Bond rates, which are also set by NS&I. Your money does not accrue interest in Premium Bonds, but you are instead entered into a monthly prize draw.
Ms Coles said that, given that there had already been two rate rises this year, a third was not out of the question – especially given the Bank of England could raise interest rates before the year is out.
She said: “NS&I is stepping up its game to compete in a tough market. It’s boosting the rates on its fixed rate bonds for the fourth time in less than four months. They’re pretty substantial hikes too, which put them within shouting distance of the best on the market. It’s a sign of just how hard the organisation is having to work to attract cash.
“NS&I has a duty to balance the needs of savers with those of taxpayers, so they are careful not to over-pay. However, they are pushing harder than they usually do. The three-year rate is now among the top 10 most competitive in the market, while the fixed rates for other periods are in the top 20.
“Loyal NS&I customers who are wedded to the brand will be paying less of a price than in previous years for their staying power if they snap up these fixed rate deals.
Better rates ‘elsewhere’
“However, you can still make more money elsewhere – with 5.12 per cent available over a year and 5.35 per cent over five. For those drawn by the 100 per cent Treasury guarantee, there’s every chance they have the protection they need from the FSCS guarantee on the first £120,000 saved with each institution.
“So it’s well worth checking cash savings hubs and online banks, which tend to offer competitive deals.
“The fact NS&I’s rates have been hiked yet again owes much to the fact that the market is so competitive right now. In August, NS&I revealed that in the first three months of its financial year it had raised just £1 billion of its £15 billion target, so it needs to knuckle down to secure some serious fundraising. It’s going to hope that this latest round of hikes will be enough to move the dial.
Premium Bonds
“Premium Bond fans will be keen to know whether we will see the Premium Bond prize rate rise again too.
“We’ve already seen it increased in July and September, so it currently sits at 4.35 per cent. Another increase could make the bonds more attractive and raise even more money for N&SI, even if the prize fund rate doesn’t actually mean holders are guaranteed to make any money on their holding.
“It isn’t out of the question considering how ferocious the savings market is right now, especially if the Bank of England decides to raise rates next month.”
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