NS&I scraps planned cuts to Premium Bond prize pool and variable savings rates

Premium Bond prize rate and variable savings rates will remain unchanged, but fixed deals will be cut.

National Savings and Investments (NS&I) has delivered some welcome good news to the nation’s savers, announcing that it is abandoning plans to lower the number of prizes on offer in Premium Bond draws.

In addition, it has confirmed a U-turn on its intentions to cut rates on variable savings deals, though reductions to the rates on fixed-rate savings deals will go ahead as planned.

The cuts had been proposed because of the "exceptionally low gilt yields" available, which NS&I uses to track how cost effective the finance it raises for the UK Government is.

But it said that scrapping the cuts would ensure that savers are supported during the Coronavirus pandemic, and urged them to disregard any letters or notifications they’ve received about rate cuts to variable rate deals.

We've been critical of NS&I in the past because its rates are often well below the very best, but it deserves huge credit here for backtracking on the most reductions at a time when high street banks are gleefully slashing their savings rates.

Let’s take a look at the planned changes that are no longer going ahead, as well as the cuts which are.

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Premium Bonds

While bonds themselves don’t pay interest as such, NS&I uses a prize fund rate to calculate the total size of the prize pool, and how many prizes will be dished out to winning bond holders each month.

That prize rate was due to fall from 1.40% to 1.30% from 1 May, which would have meant your chances of winning fell from 24,500 to one, to 26,000 to one.

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Variable rate savings deals

If you are on one of NS&I’s various savings rates that pay a variable rate of interest, then there would have been an almost immediate drop in the return you get from May if these changes had gone ahead.

Account

Current interest rate

Planned interest rate from 1 May, now CANCELLED

Direct Saver

1% AER

0.7% AER

Investment Account

0.8% AER

0.6% AER

Income Bonds

1.16% AER

0.7% AER

Fixed-term savings deals

NS&I is nonetheless going ahead with its announced changes to the returns on fixed-rate savings products.

If you hold a Guaranteed Growth Bond, a Guaranteed Income Bond or a Fixed Interest Savings Certificate from NS&I and you automatically renew onto a new issue of the same term before 1 June, you’ll still pocket the old, higher interest rate.

But if you renew onto a new issue but a term of a different length, then you’ll end up with the new lower rate.

Your interest rate won’t change if you’re slap bang in the middle of your term though, so you may not need to worry about what to do just yet.

Here’s how these rates are changing: 

Account

Current interest rate

Interest rate from 1 May

Guaranteed Growth Bonds (one year)

1.25% AER

1.1% AER

Guaranteed Growth Bonds (two years)

1.45% AER

1.20% AER

Guaranteed Growth Bonds (three years)

1.70% AER

1.30% AER

Guaranteed Growth Bonds (five years)

2% AER

1.65% AER

Guaranteed Income Bonds (one year)

1.21% AER

1.06% AER

Guaranteed Income Bonds (two years)

1.41% AER

1.16% AER

Guaranteed Income Bonds (three years)

1.66% AER

1.26% AER

Guaranteed Income Bonds (five years)

1.97%AER

1.61% AER

Fixed Interest Savings Certificates (two years)

1.30% AER (tax free)

1.15% AER (tax free)

Fixed Interest Savings Certificates (five years)

1.90% AER (tax free)

1.60% AER (tax free)

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