National Savings & Investments (NS&I) has announced steep cuts to its premium bonds prize draw, which will see it withdraw more than a million prizes – a reduction of more than £28,300,000.
As a result of the cuts, it will become significantly more difficult to win a prize. Right now savers have a 24,500 to 1 chance of winning, this will change to 34,500 to 1 from the December prize draw.
Elsewhere, a number of NS&I’s fixed and variable rate cash Isas and savings accounts will also see rate cuts from 24 November, with some due to pay just 0.01% AER.
NS&I was due to make cuts to its products in May, but this was cancelled as it said it wanted to ‘support savers during the coronavirus pandemic’. However, this new round of cuts is far more dramatic than those planned earlier this year.
Here, Which? reveals the extent of the cuts NS&I plans to introduce across its premium bonds, savings accounts and cash Isas.
Premium bonds prize cuts
Savers have been flocking to premium bonds recently; there were almost 94.5bn premium bonds in September’s draw – a jump of almost 15% since September 2019.
However, their popularity might be put into question if people feel they are unlikely to win.
NS&I says the changes will reduce the premium bonds prize fund rate from 1.4% to 1%. This is not to be confused with an interest rate; money held in premium bonds does not receive any form of interest. Rather, this rate reflects the overall rate at which all of the money held in premium bonds increases in the course of 12 months.
This average includes those who see their savings increase by £1m after winning the jackpot, and those who win nothing at all. A smaller prize fund rate suggests there are likely to be many more people who won’t win any prizes.
The table below shows how premium bonds prizes are expected to change, comparing those given out in September with estimated prizes to be given out in December.
|September: prize amounts||September: number of winners||December: estimated number of winners|
As the table shows, NS&I plans to give out more than a million fewer prizes from December. While it paid out more than £110m in prizes in September, the reduced number of prizes will cost just under £82m.
- Find out more: premium bonds – are they worth buying?
NS&I cash Isas and savings account rate cuts
The table below shows how rates on NS&I’s savings products will change from 24 November 2020.
|Account||Current AER||AER from 24 November 2020|
|NS&I Junior Isa||3.25%||1.5%|
|NS&I Income Bonds||1.16%||0.01%|
|NS&I Direct Saver||1%||0.15%|
|NS&I Direct Isa||0.9%||0.1%|
|NS&I Investment Account||0.8%||0.01%|
In addition, NS&I’s Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates will also see rate cuts between 0.9% and 1.15%.
Its Income Bonds, which have served as the top-rate instant-access account for several months will soon offer the lowest interest rate possible without getting rid of interest altogether.
This represents a potentially huge loss of interest for savers. For instance, if you had £10,000 saved in Income Bonds, over the course of a year you’d earn just £1 at the new rate, compared to £116 at the current rate.
If you have savings tied up in one of these accounts, come November it might be worth shopping around to see if you can find a more competitive rate elsewhere. Our guides on how to find the best savings account and how to find the best cash Isa are updated weekly to show the market-leading rates.
- Find out more: what is National Savings & Investments?
Why is NS&I making these cuts?
NS&I says the cuts are due to ‘extremely high demand’ for its savings products, and it having to ‘strike a balance between the interests of savers, taxpayers and the broader financial services sector’.
The provider works differently to a normal bank, in that it only offers savings products used to provide funding to the UK government. In July it announced that its net financing target – that is, the amount of funding it needed to provide to the government – had been raised from £6bn to £35bn.
Between 1 April and 30 June, it had already provided £14.5bn in funding – proof that savers had been enticed by the hard-to-beat combination of top savings rates and having 100% of their cash backed by the Treasury (as opposed to usual compensation from the FSCS, which is capped at £85,000 per financial institution).
If it has now reached or is soon to reach its funding target it stands to reason that it needs to now cut its rates and encourage savers to go elsewhere to avoid monopolising the market.
The cuts it had planned for May were actually less dramatic. There were due to be almost 174,000 fewer premium bond prizes, and the odds would have changed to 26,000 to 1 – in comparison to what’s coming in December, these are much more favourable.
Similarly, NS&I’s Direct Saver and Income Bonds were due to pay 0.7% AER – far more than what these accounts will pay from late November.
- Find out more: how to find the best savings account