- Prize fund rate and odds of winning are both going up
- Rates on other NS&I accounts also increasing but are not market leading
National Savings & Investments (NS&I) will increase the prize fund rate for its Premium Bonds to the highest level since March 1999, making them one of the best easy-access accounts available.
The prize fund rate will rise from 4 per cent to 4.65 per cent from September, although this rate is not guaranteed and is just the average return for savers who win prizes. The odds of winning a prize will also improve to 21,000 to 1 from 22,000 to 1. The number of prizes worth between £50 and £100,000 will increase, while those worth £25 will be reduced.
This is the latest of a series of rate increases from NS&I, as it tries to keep up with the rates offered by banks and building societies. The top-paying easy-access accounts currently offer around 4.60 per cent, although Tandem pays up to 5 per cent with restrictions.
Laura Suter, head of personal finance at AJ Bell, said it was “inevitable” that NS&I would continue to increase rates after June marked its third month of falling inflows. “Taking a punt on Premium Bonds was a more attractive gamble when interest rates were rock bottom,” she said.
While most people are better off with an account that pays a guaranteed rate, NS&I prizes are tax-free, which can be attractive for higher and additional rate taxpayers or for those who have exhausted both their personal savings allowance and their Isa allowance. Higher rates from banks have meant savers are breaching the personal savings allowance with a smaller pot of cash than they used to.
Premium Bonds savings are also backed by the state and therefore are fully protected so savers need not worry about the £85,000 limit for the Financial Services Compensation Scheme.
From 18 August, NS&I will also raise interest rates on a range of other accounts. The rate will go up from 3.40 per cent to 3.65 per cent for the Direct Saver, from 3.45 per cent to 3.65 for Income Bonds, from 2.40 per cent to 3 per cent for the Isa, from 3.65 per cent to 4 per cent for the Junior Isa and from 0.85 per cent to 1 per cent for the investment account.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, noted that “while any increase is welcome it’s important to know these non-Premium Bond account rates aren’t market leading”.
