Premium Bond holders could be in luck over the next three months. The Budget last week may have been full of gloomy news for savers – a cut in the Isa allowance to £12,000 for under-65s from April 2027 and a two percentage point rise in tax on interest for higher and additional rate taxpayers – but there was one ray of light.
Rachel Reeves has tasked National Savings and Investments (NS&I) with bringing in a higher fundraising target.
It has until the end of the financial year on March 31 to bring in a target of £13billion – with an acceptable range of £4billion on either side. Previously its target was £12billion, as set by the Chancellor in the Spring Statement.
NS&I has just four months to go to meet this higher target and it has its work cut out. At the halfway stage to September it was well behind its target.
Figures released last week by NS&I show it had raised just £3.9billion at the halfway stage to the end of September, less than a third of its original lower target. That tells me that its interest rates need to stay competitive to pull in money.
To meet the target, NS&I rates – including the Premium Bond prize fund – are likely to stay at current levels even if the Bank of England cuts its base rate.
This could happen between now and Christmas at its meeting scheduled for December 18. At worst, even if NS&I does slash its prize rate, it is unlikely to pass on the full base rate cut.
National Savings interest rates, and the Premium Bond prize, are likely to stay competitive to enable the NS&I to hit the fundraising targets it has been set by the Government
The move is a rare bit of good news amid a gloomy post-Budget week for savers
In September a net £636million left its coffers, the first monthly outflow it has recorded for 18 months. But October saw a turnaround – it pulled in £1.3billion, bringing its total for seven months of this financial year to £5.2billion.
It needs to bring in around the same amount each month for the remaining five months to hit £11.7billion – at the low end of its target.
The prize rate may only be 3.6pc, but savers still love Premium Bonds – it allows them to dream that they could win big.
This week, a lucky Premium Bonds saver scooped one of the two £1 million December prizes from a £20,000 holding, purchased only in February. It’s wins like this that keep savers in the game.
NS&I could also raise rates on its fixed-rate bonds again – as it did last month – to increase inflows.
Last month it raised the rate on its one-year Guaranteed Growth Bond to 4.2 pc.
It’s not the best rate – Investec pays 4.5 pc – but not far behind. It is certainly better than rates paid by the savings mammoths.
The top rates here are 3.9 pc from Coventry BS or 4.18 pc from Co-op Bank. The worst is 3.4 pc from Halifax and Lloyds or 3.55 pc from Barclays.
A huge £31billion has gone into these tax-free accounts in total since April as savers look to ensure we don’t pay tax on our interest.
But NS&I only offers its easy-access Direct Isa paying a lowly 3.5 pc – best rates are over 4 pc – and no fixed-rate version. And it doesn’t allow you to transfer your cash Isas which you hold with other providers into its account.
Its Direct Saver and Income Bond easy access accounts are poor value, having paid just 3.3 pc for most of this year. That’s well below the 4 pc plus paid by other providers so these rates could rise.
This current account is a real draw
Biscuit, the new current account from Zopa Bank, has brought a new twist to the ferocious current account war.
Rather than the usual carrot of a payment of up to £200 for switching, it is handing out prizes in a Christmas draw for new customers.
If you open a current account in December and put in £50 you will be entered and could win the top prize of £10,000.
There are also five prizes of £1,015 – it says this is the average spend – up for grabs to cover the cost of Christmas. You will find out if you have won on January 13.
It will also give you access to Zopa’s regular saving plan which pays a top 7.1 pc on up to £300 a month.
Saving £100 a month will give you £1,246 after 12 months, including £46 interest, assuming the rate stays the same – just in time for next Christmas.