NS&I Savings rates and Premium Bonds prizes to be cut

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NS&I savings rates and Premium Bonds prizes to be cut

NS&I Savings rates and Premium Bonds prizes to be cut from 24th November

NS&I is one of the largest savings organisations in the UK, offering a range of savings and investments to 25 million customers. All products offer 100% capital security as NS&I is backed by HM Treasury.

NS&I announced that interest rate reductions, effective from 24 November 2020, that will apply to NS&I’s variable rate products and some fixed-term products. The Premium Bonds prize fund rate will also be reduced and apply from the December 2020 draw.

If like me, you decided to take out savings pre or during the pandemic, to save for an emergency fund. This will be a disappointing blow.

Savings rates will be cut from 24 November 2020. 

  • NS&I’s Income Bonds account will be reduced from 1.16% to 0.01% AER
  • Direct Saver account will drop from 1% to 0.15% AER 
  • Direct ISA will drop from 0.9% to 0.1% AER
Image: www.SeniorLiving.Org

Premium Bond prize rate will be cut from 1.4% to 1% in December

The current prize rate for Premium Bonds is 1.4%. In other words, each £1 bond has a 1 in 24,500 chance of winning any prize. But from the December 2020 Premium Bond prize draw, the odds will be lowered to 1 in 34,500, with over one million fewer prizes set to be given out in December than in September. To be honest – chances are of winning are slim – but better than the National Lottery so will keep a few pennies in this one just in case!

According to the NS&I, the interest rate reductions will see them align their savings products against the rates offered by the banks and building societies.

Ian Ackerley, NS&I Chief Executive, said:

“Reducing interest rates is always a difficult decision. In April we cancelled interest rate reductions announced in February and scheduled for 1 May. Given successive reductions in the Bank of England base rate in March, and subsequent reductions in interest rates by other providers, several of our products have become ‘best buy’ and we have experienced extremely high demand as a consequence. It is important that we strike a balance between the interests of savers, taxpayers and the broader financial services sector; and it is time for NS&I to return to a more normal competitive position for our products.”

Variable rate savings products
ProductCurrent interest rateInterest rate from 24 November 2020 (change in brackets)
Direct Saver1.00% gross/AER0.15% gross/AER (-85 basis points)
Investment Account0.80% gross/AER0.01% gross/AER (-79 basis points)
Income Bonds1.15% gross/1.16% AER0.01% gross/0.01% AER (-114/115 basis points)
Direct ISA0.90% gross/AER0.10% gross/AER (-80 basis points)
Junior ISA3.25% gross/AER1.50% gross/AER (-175 basis points)
Premium Bonds (effective from December 2020)

The Premium Bonds prize fund rate will be reducing by 40 basis points, from 1.40% to 1.00%. The odds of any £1 Bond number winning any prize will decrease from 24,500/1 to 34,500/1. The changes will be effective from the December 2020 prize draw.

Current prize fund rateCurrent oddsNew prize fund rate (from December 2020)New odds (from December 2020)
1.40% tax-free24,500 to 11.00% tax free34,500 to 1
Value of Premium Bonds prizes
Value of prizesNumber of prizes in September 2020Number of prizes in December 2020 (estimate)
£1,000,00022
£100,00074
£50,000149
£25,0002816
£10,0007143
£5,00014083
£1,0002,2041,639
£5006,6124,917
£10030,24426,637
£5030,24426,637
£253,786,4742,790,269
Total:3,856,0402,850,256
Fixed term savings products

On 24 November, NS&I is also reducing the rates on offer for its fixed-term investments, by between 90 and 115 basis points. Fixed-term investments are not on general sale and are only available to customers who wish to renew an existing investment when it matures. NS&I will write to all holders of Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates at least 30 days before the end of their term, outlining their options.

Customers holding Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates and whose investments mature on or before 24 November 2020 and who automatically renew into a new Issue of the same term, will receive the previous, higher interest rate. After this date customers who automatically renew into the same term will receive the lower interest rate from 24 December 2020.

However, any customers who choose to renew into a new Issue but a term of a different length, will receive the reduced interest rate effective from 24 November 2020.

Current holdings will be unchanged until they mature and customers do not need to take action now. NS&I will write to all holders of Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates at least 30 days before the end of their term.

ProductCurrent interest rateInterest rate from 24 November 2020 (change in brackets)
Guaranteed Growth Bonds(1-year)1.10% gross/AER0.10% gross/AER (-100 basis points)
Guaranteed Growth Bonds(2-year)1.20% gross/AER0.15% gross/AER (-105 basis points)
Guaranteed Growth Bonds(3-year)1.30% gross/AER0.40% gross/AER (-90 basis points)
Guaranteed Growth Bonds(5-year)1.65% gross/AER0.55% gross/AER (-110 basis points)
Guaranteed Income Bonds(1-year)1.05% gross / 1.06% AER0.06% gross / 0.06% AER (-100 basis points)
Guaranteed Income Bonds(2-year)1.15% gross / 1.16% AER0.11% gross / 0.11% AER (-115 basis points)
Guaranteed Income Bonds(3-year)1.25% gross / 1.26% AER0.36% gross / 0.36% AER (-90 basis points)
Guaranteed Income Bonds(5-year)1.60% gross / 1.61% AER0.51% gross / 0.51% AER (-110 basis points)
Fixed Interest Savings Certificates(2-year)1.15% tax-free/AER0.10% tax-free/AER (-105 basis points)
Fixed Interest Savings Certificates(5-year)1.60% tax-free/AER0.50% tax-free/AER (-110 basis points)

What to do next?

With the end of furlough and redundancies for many people, saving is crucial right now. If you have money to invest that’s great, but many of us want easy access to money in case of emergencies, but also want to squirrel any money away to keep it safe. I for one, will be keeping a small amount of money in Premium Bonds but am currently looking for alternative savings accounts right now. I am going to be starting to use an app called Plum, which I will be writing about in October to automate my savings,