National Savings & Investments has raised its premium bond prize fund to 3.3% from next month. The rate is increasing from the current 3.15%, meaning £15 million more in prizes will be available.
NS&I said the odds of each £1 Bond winning a prize will remain at 24,000 to 1, but the number of prizes worth £50 to £100,000 will increase from the March draw.
It is the fifth prize fund rate increase for Premium Bonds in the last year. NS&I increased the rate to 3% on 1 January and again earlier this month to 3.15% for draws made in February.
In addition, NS&I said Direct Saver and Income Bonds customers will also see their interest rates increase to 2.85%, up from 2.60%, with immediate effect.
Ian Ackerley, chief executive of NS&I said: “Premium Bonds are one of the nation’s most loved ways to save, giving people the monthly anticipation of a potential win while knowing their money is 100% safe.
“We are committed to ensuring our products remain attractive and our customers can continue to save with confidence. Today’s changes mean that we continue to balance the interests of savers, taxpayers and the broader financial services sector.”
However, Laura Suter, head of personal finance at AJ Bell, said the upward boost feels like a “daily occurrence rather than a once in a blue moon event” as the Government-backed provider seeks to keep pace with the rates war in the savings market.
Suter said: “This latest increase takes Premium Bonds ahead of all the competition, with the highest easy-access account currently paying 3.05%. Typically NS&I will never aim to lead the market and beat competition, but in the face of regular savings accounts offering much higher rates and savers being far more likely to shift their money to other providers, the government-backed provider clearly needs to get more savers through the door.
“These rate updates are likely to wane soon as the heat comes out of the savings market. While only a fool would think they can accurately predict the Bank of England’s next moves on rates, the Bank itself said in its latest report that expectations are that interest rates will only rise by another half a percent from here before falling. This means the savings market is likely to reach its peak soon.
“Even with the increase in the prize fund, most people would be better off with a conventional savings account rather than Premium Bonds. There are a few groups where Premium Bonds are a very attractive option, but for most the safety of a regular interest rate will be better.”
According to Suter, much of the appeal for Premium Bonds was the tax-free winnings but the introduction of the Personal Savings Allowance means most people no longer pay tax on their savings income. However, the tax-free nature of Premium Bonds may still be attractive to those in the highest tax bracket who receive no savings allowance.
Premium Bonds also hold appeal for the very risk averse, who take comfort by the fact they are run by the Government.
Suter added: “We’re all protected by the Financial Services Compensation Scheme, which covers up to £85,000 of money per person, per financial institution. This means that your money is theoretically as safe in any other bank with FSCS protection as it is with Premium Bonds.
“However, because NS&I is Government run it can’t go bust, whereas a bank could go bust and then you’d have to reclaim your money through the compensation scheme. It’s a marginal difference but some people will feel much safer with their savings being with the Government.”
