Hidden away in last week’s Spring Statement was some good news for Premium Bond holders.
Documents released alongside the Chancellor’s announcement revealed that the Government has asked National Savings & Investments (NS&I) to bring in a bumper £15billion (plus or minus £4billion each side) in its next financial year, which starts on April 1.
That’s 15 pc more than this year’s target of £13billion (with the same leeway each side). In order to meet its target, NS&I is likely to have to keep its prize rate higher than it might otherwise to attract new cash from savers.
NS&I chief executive Dax Harkins told me: ‘Our pricing during the next year will be designed to meet this target and maintain market stability.’
NS&I has two main ways to bring in more cash from savers: from Premium Bonds and from its savings products such as bonds and Isas. Premium Bonds, which hand out tax-free prizes each month, are by far the biggest fund raiser.
They account for some 55 pc of the money it holds and give it a useful tap to turn on and off depending on how much money it needs to pull in. To bring in more cash, raising the Premium Bonds prize rate is likely to be NS&I’s first port of call.
The outlook for the prize fund has also been given a second boost. Savings rates in the wider market have been rising in the last few days because a widely expected Bank of England cut in its base rate, expected next week, appears to be off the table.
Rates are expected to stay higher for longer as inflation’s downward path has been knocked off course by the Iran conflict and rising petrol prices.
The Government has asked NS&I to bring in a bumper £15billion in its next financial year, which starts on April 1
If rivals are increasing their rates, NS&I will have to do the same – or at least keep its prize rate unchanged – or else risk losing money from customers looking for better options elsewhere.
We saw how Premium Bond holders benefit when NS&I needs to raise cash late last year.
The prize rate remained untouched at 3.6 pc while other savings providers were slashing theirs in the wake of two cuts in the Bank of England base rate. NS&I did not follow suit because halfway through its financial year, it had brought in just £3.9billion – well below its target – so it needed to keep the prize rate up to attract more money.
And so the prize rate remained unchanged and defied two base rate cuts from 4.25 pc to 3.75 pc between then and the end of last year. NS&I’s strategy worked: a huge £1billion went in in November in time to qualify for the January draw compared to just £213million in June. The new higher target will give Premium Bond holders hope that the prize rate won’t get worse following their severe disappointment when NS&I announced a cut from 3.6 pc to 3.3 pc next month.
And worse, there is less of a chance that you will win anything, as the odds will be worse – up from 22,000 to one to 23,000 to one.
And if you do win, it is likely to be a £25 prize. For the next draw, the number of large prizes will fall drastically – there will be 1,310 fewer prizes in the £10,000 to £100,000 range, and nearly 200,000 fewer £100 and £50 prizes.
Meanwhile, the number of £25 prizes jumps by nearly 164,000 to 2.8million.
The only prize value not affected is the £1million monthly jackpot for two lucky holders.
Higher bonus on cash Isas at Marcus
If you have a Marcus cash Isa, get on to its website or app and increase your bonus now.
It will only take a couple of minutes and will raise your tax-free interest rate from 3.75 pc to 4.01 pc. Last week the bank raised the bonus on its cash Isa from 0.49 percentage points to 0.74 points for twelve months.
If you open an account now, you will automatically get the new higher bonus. But if you already have this account, you need to renew your bonus so you earn the higher one.
You can do this even though your one-year 0.49-point bonus has not yet expired. Just log on, select ‘view bonus options’ under your account information and select ‘renew your bonus’.