Premium Bonds prize fund to increase to 1.40%
In a surprise move, NS&I have announced they are increasing the rate on their Premium Bond prize pool to 1.40% with effect from the June 2022 draw.
Premium Bonds are arguably the nation's favourite savings product, with almost 118m bonds in May's prize draw, and now they are set to become more attractive with a boost to the prize fund. Although the number of £1m prizes remains at two per month, the number of smaller prizes is set to increase significantly with 10 x £100,000 prizes available in June, up from six in May. £50,000 prizes almost double with 19 in June versus 11 in May. The odds of winning improve sharply with each bond having a 1:24,500 chance in June as opposed to 1:34,500 currently.
NS&I cut the prize fund to 1%, from 1.40%, in December 2020 but, despite this, they have remained popular with the numbers of bonds increasing by almost 20% since the cut. With easy access savings best buy rates falling to under 0.50%, at their low point during Covid, it was no surprise that many savers opted to sacrifice such low interest rates for the chance of winning significantly bigger prizes. However, with over 20 providers paying over 1%, and Chase paying a best buy 1.50%, NS&I have clearly decided to act to avoid Premium Bond savers heading for the exit.
HM Treasury set a net financing target for NS&I each financial year, which for them runs from 1st April to 31st March. This year it is £6bn, although they are permitted to operate between a range of £3bn - £9bn. With over £650m added to Premium Bonds in April, they had started the year strongly. However, easy access rates have increased sharply from then when just five providers paid 1% or more and the best buy was 1.10%. It is unlikely that such strong growth will have been achieved in May and a real possibility that there were net outflows on Premium Bonds. With Premium Bonds accounting for around 55% of NS&I's book, they simply cannot afford to see that happen, particularly as money has flooded out of other products since NS&I cut rates on almost all its products in November 2020. Although it has recently increased some of these, it's not likely to have been enough to keep those savers still there. Coupled with the firms appaling customer service (86% of its 1753 reviews on ratings site Trustpilot are the lowest 1 star rating), they are unlikely to be enough to attract savers back either so NS&I simply cannot afford to get it wrong with Premium Bonds.
As well as being good news for Premium Bond holders, this move could be good news for savers widely. An exodus of cash from Premium Bonds could have dampened the easy access savings market. This news could see new money attracted to Premium Bonds and could force savings providers looking to attract easy access savings to increase their rates to do so. It's likely that it will see the gap between Chase (1.50%) in first and Al Rayan Bank (1.31%) filled by other providers and possibly even one to go toe to toe with Chase.