NS&I announces rate cuts to Premium Bonds and other savings products

Savings giant NS&I is slashing the rate on some of its accounts as well as on its Premium Bonds prize fund in a blow to savers.

The Treasury-backed provider, which has 25 million customers, said the rate reductions announced today will mean it aligns its savings products against the rates offered by the banks and building societies.

It has seen high customer demand as its products have climbed up the “best buy” tables in recent months, at a time when the returns on offer generally from banks and building societies have been dwindling in the low interest rate environment.

NS&I said it is now time for it to “return to a more normal competitive position”.

The reductions to savings products will come into force from November 24 and the changes to the Premium Bonds prize fund rate will be effective from the December prize draw.

Among the changes announced, the odds of any £1 Premium Bond number winning any prize will decrease from 24,500 to one to 34,500 to one.

It is estimated there will still be two £1 million prizes in the December draw – the same as in September.

But the estimated number of £100,000 prizes will fall from seven in September to four in December, and the number of £50,000 prizes is expected to decrease from 14 to nine.

There will be around 16 £25,000 prizes in December, down from 28 in September.

And there will be an estimated 43 £10,000 prizes in December, down from 71 in September.

The savings rate reductions will also mean that the rate on one-year guaranteed growth bonds plunges from 1.1% to just 0.1%.

The rate on five-year versions of these bonds will drop from 1.65% to 0.55%.

The rate on one-year guaranteed income bonds will fall from 1.05% to 0.06% and the five-year version of those accounts will fall from 1.6% to 0.51%.

Rates on fixed interest savings certificates are also being slashed.

NS&I said customers holding guaranteed growth bonds, guaranteed income bonds and fixed interest savings certificates and whose investments mature on or before November 24 and who automatically renew into a new issue of the same term, will receive the previous, higher interest rate.

After this date, customers who automatically renew into the same term will receive the lower interest rate from December 24.

Customers who choose to renew into a new issue but a term of a different length, will receive the reduced interest rate effective from November 24.

Current holdings will be unchanged until they mature and customers do not need to take action now.

NS&I said it will 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.

NS&I has a duty to strike a balance between the interests of savers, taxpayers and the broader financial services sector.

In July, NS&I’s net financing target for 2020-21 – the amount of money it is allowed to raise – was revised significantly upwards from around £6 billion to around £35 billion – reflecting the Government need to raise cash to help combat the impact of Covid-19.

NS&I said that between April and June, it delivered £14.5 billion of net financing – and demand for its products has remained high between July and September.

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

“In April, we cancelled interest rate reductions announced in February and scheduled for May 1.

“Given successive reductions in the Bank of England base rate in March, and subsequent reductions in interest rates by other providers, several of our products have become ‘best buy’ and we have experienced extremely high demand as a consequence.

“It is important that we strike a balance between the interests of savers, taxpayers and the broader financial services sector; and it is time for NS&I to return to a more normal competitive position for our products.”

David Gibb, a chartered financial planner at Quilter, said: “Today’s cuts to savings rates by NS&I will be a real kick in the teeth for savers at a time when many will be concerned about what is to come in the future.

“The Government made it clear it wanted NS&I to raise more funds, but with economic uncertainty rife right now it has changed tack and wants a nation of spenders rather than savers.

“The cuts announced are significant and from next month will take NS&I from the top of the best buy tables right down to the bottom.

“Savers have had to contend with paltry rates from banks and building societies for well over a decade now, and it appears rates have somehow managed to get worse.

“Given the amount NS&I has raised this year, many will now find their money will languish in accounts that will fail to deliver the sort of interest they will require. These savings have become less than premium overnight.”