Premium bonds are somewhat of a national treasure. They’re loved by more than 22 million savers, who are prepared to forgo any interest, and accept the likelihood that in an average month they’ll win nothing, in return for the chance of winning a prize at some point in the future.
Although the odds of winning remain one in 24,000, National Savings & Investments (NS&I) has boosted the prize fund rate five times in the last year. Currently at 3.3%, this is the highest it’s been for over 14 years and triple the rate a year ago.
The number of prizes worth £50-£100,000 has increased, and Ian said that inflation had played a part in this decision.
In one of the latest episodes of our Switch Your Money ON podcast, he said it was “a lot about giving people bigger prizes, and reflects the fact that people love to win on the premium bonds, but they love to win big even more.”
The increases also reflect a fast-changing savings market. The Bank of England has risen the base rate to the highest level in 14 years, which has seen interest rates on savings accounts rise too.
Why the rates aren’t usually the best around
NS&I is also home to a range of savings accounts backed by the government. At a time of rising rates, NS&I has boosted those on offer a number of times, but they remain well below the most competitive in the market.
Ian explained that this is because NS&I doesn’t just have to think about customers.
“It’s about balancing the interests of the taxpayer, who is effectively paying the interest, the customers who are receiving it, but also the overall market. We’re trying to strike a point in the market where we’re not disrupting what’s going on. It does mean we’re rarely at the top of the tables, but we think we’ve struck a fair balance for everybody.”
There was a strong exception to the rule during the pandemic, when rates elsewhere in the market plummeted. But punchy government targets kept NS&I rates higher. Since then, rates have reverted to something far more typical.
You can find better rates if you look for them. Active Savings is one way to take the hassle out of moving your savings around to get a better deal.
You can pick and choose easy access and fixed-term savings products from a range of banks and building societies, all in one online account. You’ll save time and effort without having ID checks and application forms to move your savings between different banking partners. And you can see all your savings together in one place, making it easier to manage.
Mix and match fixed term rates that range from a few months to several years, all alongside your emergency easy or limited access cash pot. There’s no limit to the number of products you can choose. Please remember fixed term products generally only allow access to funds at maturity and inflation reduces the spending power of money.
This article gives you information to help you make the most of your money, but it isn't personal advice. If you're not sure if a certain action is right for you, seek advice.
Why the green bond rate was so low in the early days
One rate which was strikingly low on launch by NS&I, was the very first issue of the green bond, offering just 0.65% AER fixed over three years. Since then, newer issues have had higher rates, and the latest issue stands at a much more rewarding 4.2% AER fixed for three years. It owes a great deal to rising Bank of England rates, but Ian explained it was also about the bond finding its feet.
He said, “It’s the very first green sovereign savings product that has launched in the world. It’s quite an adventure for us. When we launched the product, it was unique in the market. There were some other green savings institutions, but there wasn’t a government-backed green savings product, so it was very difficult to know what sort of return customers would expect. We did price it very cautiously initially and we have progressively increased the rate on it.”
He said they’ll continue to review the rate.
“We want to pay a fair rate of return for the customers, something that isn’t too onerous on the taxpayer, but also crucially isn’t undermining the rest of the green savings market, because we’re really keen for the rest of the green savings market to flourish as well – so it is a balancing act.”
Why the JISA rate is a bit punchier
While NS&I rates tend to come in below the best on the market, the Junior Cash ISA rate is often one of the more generous cash versions on the market. Ian explained it was a way of bringing younger people into NS&I.
He said, “We are committed strategically to inspiring a stronger savings culture in the UK and one of the ways we can achieve that is by encouraging young people to save in particular. That’s why we try to ensure the JISA is competitive.”
It’s also, he explained, one reason why the minimum investment in premium bonds was cut from £100 to £25 and why the rules changed to allow anyone to buy for any child.
Ian said it was “about trying to create a stronger savings culture by making sure that more children grow up with a savings product.”
Ian also shared his views on greenwashing and the importance of transparency in the green savings market. For this, plus Sophie Lund-Yates on banks, Nick Shenton, manager of the Artemis Income Fund and an overview of the banking sector from hosts Susannah Streeter and Sarah Coles, listen to our latest episode.
This website is issued by Hargreaves Lansdown Asset Management Limited (company number 1896481), which is authorised and regulated by the Financial Conduct Authority with firm reference 115248.
The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised and regulated by the Financial Conduct Authority (firm reference number 915119). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money.
Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 2122142).