Savers are flocking back to Premium Bonds after last month’s prize rise. And I expect more good news to follow.
NS&I, which issues Premium Bonds, has had a bad start to the financial year, bringing in just £1billion in three months.
That’s a fraction of the £15billion it is tasked with bringing into the Government coffers – with a leeway of £4billion either way.
Since then it’s been playing catch up in its efforts to woo savers. The interest rate that the prizes equate to shot up from 3.3 per cent to 4.35 per cent in just three months – even though the Bank of England’s base rate has stayed at 3.75 per cent.
It has also improved the odds of winning from 23,000 to 21,000 to 1 per £1 bond by dishing out more prizes.
NS&I has also upped rates on its fixed-rate Guaranteed Growth and Income Bonds, putting them near the top of the best buy tables at 4.99 per cent and 4.88 per cent respectively, along with its easy-access Direct Saver (now 3.75 per cent) and its Income Bonds (3.69 per cent).
Savers are flocking back to Premium Bonds after last month’s prize rise and Sylvia Morris expects more good news to follow
These are popular with pensioners, as they pay monthly interest and give easy access to money.
The strategy is working. Latest figures show £356million flowed into Premium Bonds in August in time for the October 1 draw (when it dished out £498,378,775 in 6,546,849 tax-free prizes) as against £100million that left after the prize fund was cut to 3.3 per cent for the April 1 draw.
But NS&I still has far to go to meet its target. In the first five months of this financial year from April to August it attracted just over £3billion in total.
That means it needs to bring in more than £1billion a month to hit even the £11billion minimum target. It can only do this by keeping its prizes and savings deals attractive.
I’ll be keeping an eye on the Budget. Often hidden in the small print is a change to the amount the Government raises through NS&I. If it stays the same (or goes up), Premium Bond prizes will remain competitive.
Prize rates could also be driven up by base rate rises. Some experts predict one next month and another in December as the Bank of England tries to quash inflation, driven by rising energy bills. As base rates rise, so do savings rates – and NS&I will have to keep up with the competition.
If you are considering buying more, do so towards the end of the month.
You must hold bonds for a complete calendar month before they go into the draw, so whether you purchase them today or towards the end of October, the first draw for which they will be eligible is on December 1.
So to avoid missing out on interest elsewhere, put a reminder in your diary to buy bonds later this month.
