NS&I announces MASSIVE rate hike to Premium Bonds prize fund

NS&I has boosted the rate on its Premium Bonds prize fund to 4.65 per cent from 4 per cent. 

The rate is now at a level not seen since March 1999 and the increase will come into effect from the September 2023 prize draw. 

Only one easy-access savings rate beats 4.65 per cent – and that is Tandem Bank, which boosted its rate to 5 per cent yesterday. 

NS&I is also upping the rate across its variable rate products, so savers holding Income Bonds, Direct Saver, Direct Isa, Junior Isa and Investment Account will also benefit.

Cause for celebration: NS&I have raised the rate on its Premium Bonds prize fund rate to 4.65% from 4%, the highest rate since since March 1999

The odds of winning a Premium Bonds prize will now improve to 21,000 to 1 from 22,000 to 1 – the best level since the April 2008 prize draw.

The change in odds will see an estimated extra £66million added to the prize fund next month, with a potential prize pot of over £470million. 

NS&I estimates that there will be 5,785,904 prizes up for grabs from September – an increase of more than 269,000 compared to August 2023.

From September’s draw, the number of smaller £25 prizes will drop from roughly 1.7million to just over 1million.

Meanwhile, it is adding around half a million more £50 prizes, and half a million more £100 prizes.

The number of £1million jackpot prizes remains two, but there will be 90 £100,000 prizes – up from 77. And additionally, there will be 181 £50,000 prizes compared to 154 in August. 

In May 2022, when the underlying prize fund was far lower, there were just six £100,000 prizes and 11 £50,000 ones.

Dax Harkins, NS&I chief executive, says: ‘These upcoming increases show that we’re supporting savers up and down the country.

‘Premium Bonds are one of the nation’s favourite savings products, so increasing the prize fund rate to its best level since 1999 and improving the odds means that more people will have the chance to win prizes each month.

‘These rate increases will help ensure that our savings products remain attractive to customers, whilst ensuring that we continue to balance the needs of savers, taxpayers and the broader financial services sector.’

Anna Bowes, co-founder of Savings Champion, says: ‘This is great news although not altogether unexpected, since cash being deposited into NS&I accounts has fallen for the last three months, according to the Bank of England.

‘As a result, NS&I has been forced to up rates to make sure they don’t lose too much more, otherwise they will fall short of their net financial target, which is £7.5billion for the current tax year.

‘Premium Bonds are likely to remain popular, as they are different, since you are not guaranteed to win a prize, but any prizes you do with are tax free – and there are not more larger prizes up for grabs. 

‘Some may have sold their Premium Bonds in order to earn at least some guaranteed interest elsewhere, so this new rate, which is very competitive, may stop those who were about to leave from selling and could well entice others back.’

James Blower, founder of Savings Guru says: ‘NS&I have a net funding target to raise £7.5billion of savings in 2023/24 and only raised £13milion in June. 

‘Given Premium Bonds account for such a large proportion of their book, increasing rates on them is really the main thing that NS&I can do to stimulate increased savings inflows.

The increase in prize pool to 4.65 per cent compares well with easy-access savings accounts with only Tandem paying a higher rate. 

‘However, to pay the larger prizes, the average saver will earn much less with someone with £50,000 and average luck likely to earn a return around 4.1-4.2 per cent. For smaller balances it will be even less. 

‘The vast majority of savers will earn much more by saving in the best easy access savings accounts, given where their rates are, so we’d only recommend Premium Bonds should to savers who want the thrill of potentially winning larger prizes and who are comfortable that the odds are such that they are highly unlikely to do so.’

Variable rate increases

Customers holding Income Bonds, Direct Saver, Direct Isa, Junior Isa and Investment Account will see their savings boosted from 18 August.

The rate paid to Direct Saver customers will increase to 3.65 per cent from 3.40 per cent, whilst the interest rate paid to Income Bonds will increase to 3.65 per cent from 3.45 per cent.

The rate paid on NS&I’s Direct Isa will increase to 3 per cent from 2.4 per cent. Young savers will also benefit, with the rate that NS&I pays on its Junior Isa increasing to 4 per cent from 3.65 per cent.

Also effective from 18 August, NS&I will be increasing the interest rate that it pays on its Investment Account to 1 per cent from 0.85 per cent.

Bowes says: ‘The new rates on the other accounts are less competitive and therefore unless you have a very large amount of cash that you can’t be bothered to split between a number of providers in order to keep it safe, savers may well continue to find better alternatives. 

‘This week Tandem Bank has increased the overall rate on its Instant Access Saver to 5 per cent (although this needs to be opened via a mobile app).

‘And the top easy access Isa with Cynergy Bank is paying 4.4 per cent – considerably more than the new rate of 3 per cent that will be paid on the NS&I Direct Isa.’ 

This post first appeared on Dailymail.co.uk