NS&I savers could be in for some changes this year, as the provider's annual report reveals its plans and targets for 2021-22.
Offering several government-backed savings products, NS&I is one of the most popular savings providers in the UK, with 25 million customers and more than £202bn invested.
Here, Which? reveals what NS&I savers can expect over the next year.
Back in September 2020, NS&I announced it would stop sending 'paper warrants' to customers through the post - including cheques for premium bond prizes - from December 2020. This was then delayed to spring 2021.
However, NS&I announced in its annual report that it is reversing this decision altogether. Prize cheques will remain as a payment option along with any other paper warrants.
NS&I's chief executive Ian Ackerley admitted that NS&I 'did not communicate the details of this change as clearly as we should have done', and as a result its phone lines were inundated with concerned customers, at a time when its customer service resources were already under strain as a result of the pandemic.
The removal of cheques had been proposed as a way to reduce the company's environmental impact, and improve the way its customers received their prizes. But, as 86% of premium bond holders already receive their prizes directly via bank transfer, or choose to reinvest their winnings, NS&I has decided to keep the cheque option for those who need or want it.
Millions of pounds flows into NS&I's premium bonds every month. In July 2021 there were 110,374,058,617 eligible bonds in the prize draw, an increase of more than 1bn since the month before.
Premium bonds don't earn interest. Instead, NS&I gives premium bonds an overall prize rate, which stands at 1%. This represents the annual increase in value of all premium bonds as a result of prizes, taking into account those who win £1m and those who receive nothing at all.
This means that the number of prizes NS&I has to award is directly related to the number of £1 premium bonds in each draw - the more people invest in premium bonds, the more prizes NS&I has to give out.
However, given how much savers are piling into premium bonds - driven by record low rates on alternative savings options - NS&I may not be able to keep up with the current prize output. This could see the prize fund reduced again, further reducing your chances of winning any prizes.
This is compounded by the fact that NS&I simply doesn't need much money from savers this year. Its target for government spending in 2021-22 is just £6bn (with the option to go £3bn over or under). This is compared to £35bn it was asked to raise in 2020-21, when we also saw prize reductions.
It's not just premium bond holders who should take note of NS&I's particularly low funding target this year; it can also have an impact on its cash Isas and other savings products.
Due to the economic impact of the pandemic, NS&I was asked to provide £35bn in financing for the UK government during 2020-21. After savers flocked to its premium bonds and market-leading savings accounts, it looked as though it was going to have far more money than it needed, prompting the dramatic cuts to its interest rates and premium bond prize rate in December 2020.
NS&I's funding target isn't the only factor that influences its rates. It must also keep pace with the rest of the savings market. So, if we are lucky enough to see significant rate improvements across the savings market over the next year, NS&I may be forced to increase its interest rates. But, unfortunately, that's a pretty big 'if'.
First announced in March as part of the Budget, NS&I's annual report confirmed that it will provide the government's sovereign green saving bonds - which will reportedly be a world first.
. They will be three-year fixed-rate bonds, available to UK savers over the age of 18. You'll be able to deposit anything between £100 and £100,000, and have the option to hold an account in joint names.
The accounts will specifically invest in companies and projects that benefit the environment in some way, whether that's by creating 'green' jobs or supporting projects working towards a low carbon economy.
However, we don't yet know what interest rates the accounts will offer, or when you'll be able to open one. NS&I's annual report says product development is under way and the accounts should be available before the end of 2021.