The history of NS&I

National Savings & Investments (NS&I) is a national treasure for savers, certainly those of a certain era and it’s little surprise as you can trace its heritage back to 1861.

But do you know the rich history behind NS&I?

How it started

Although by 1861 the British Empire was a global economic force, the common man had little opportunity to save.

However, the then Chancellor of the Exchequer, William Gladstone, liked and piloted a scheme into law that had been proposed by a Huddersfield Banker called Charles Sikes. Sikes wanted to help ordinary people throughout the country to save.

Gladstone approved, and his vision was to see a savings bank “within an hour’s walk of every working man’s fireside” to help them save for their future.

The other important man in the story was a bookkeeper in the pre-existing Money Order Department, George Chetwynd, who came up with the idea of a Depositor’s Book.

The Post Office Savings Bank was established and the first product available was the Ordinary Savings Account. 

Because one of the aims of the Post Office Savings Bank was to provide the Government with a cheap source of funding, the rate of interest was a good one. As those depositing their money were safe in the knowledge that the funds were secured by the Government. 

Apparently, Charles Dicken’s himself was said to have announced “if this doesn’t make people save, nothing will”.

It was an immediate success and by 1863 there were over 2500 branches.

Between 1863 and 1911 deposits in NS&I soared from £3m to £176m.

Over the last century NS&I has continued to thrive through war and peace, offering products to attract savers and therefore continuing to provide the Government with low cost financing. 

During the First World War, an increased need for the Government to borrow money, saw the launch of War Savings Certificates in 1916 and National War Bonds in 1917. The former cost 15s and 6d each and became worth £1 within five years. The latter payed 5% interest.

The amount raised during the First World War was almost £433m (nearly £24billion based on 2018 values).

Similarly, the Savings Bank ran a nationwide campaign to help fund the Second World War and saw deposits rise from £509m to £1,982m between 1939 and 1946.

Premium bonds are launched

In order to encourage people to save again following the end of the second world war, from 1 November 1956, Premium Savings Bonds first went on sale. 

That day alone, £5 million of bonds were bought (the equivalent of around £121 million today). Whilst today we have to hold the bonds for a full calendar month before we are entered into the monthly draw, back in 1956 you had to wait for six months.

Rather than earning interest, each £1 bond receives a unique number and will have an equal chance to win a prize in each monthly draw. 

The maximum investment at that time was just £500 and the maximum prize available was £1,000, which was a lot considering the average weekly pay was £10 a week but with average house prices at just under £2,000, it wouldn’t have been enough to buy your dream home.

Today, the maximum holding is £50,000 and the maximum prize is £1,000,000 and there are two chances to win this jackpot each month.

Introducing Ernie!

In order to ensure that every £1 bond had an equal chance of winning a prize, the draw needed to be truly random. In order to do this, the team behind the Second World War code breaker, Colossus, built the original ERNIE (Electronic Random Number Indicator Equipment) – it generated bond numbers based on the signal noise created by gas neon diodes.  It was the size of a van and took 10 days to complete a draw.

ERNIE 2 was introduced in 1973 and was able to speed through 65,000 bonds an hour, reducing the time taken to complete the draw to just five and half hours.

ERNIE 3 was an 80’s baby and quicker still. It was also the machine responsible for picking the first Premium Bond millionaire when the new prize was introduced in 1994.

NS&I is currently using ERNIE 5 – launched in March 2019 - which is powered by quantum technology which uses light rather than thermal noise that its predecessors did. And ERNIE 5 takes just 12 minutes to complete a draw.

There are now over 82 billion eligible bonds that go into the draw – and the odds of each bond winning a prize is 24500 to 1.

There are currently over 1.6 million prizes worth more than £63 million that remain unclaimed.

Post Office savings bank becomes national savings

In 1969 the Post Office Act broke the link between National Savings and the Post Office. Instead it became one of the largest Government departments with over 14,000 employees and was renamed as the National Savings Bank. In 2002 this name was changed again to what we now know – National Savings & Investments.

Today, NS&I manages around £157 billion in savings for 25 million customers as both a government department and an Executive Agency of the Chancellor of the Exchequer.

How does NS&I determine the rates it offers to its customers?

Every year, NS&I is targeted with raising a certain amount of money to lend to the Government (called the Net Financial Target) and this can influence the products and rates that are available to new and existing customers. 

When the Government wants to raise more money for the public purse, rates on offer are likely to increase as well as the availability of popular products.

What’s happened recently?

It’s been a tough year for savers with National Savings & Investments (NS&I), as the Treasury has looked for ways to reduce inflows and the most recent announcement has been that the popular Guaranteed Income and Guaranteed Growth Bonds have been withdrawn from sale.

This most recent move is despite the fact that the March 2019 Spring Statement confirmed that NS&I’s 2019-20 Net Financing target is to deliver £11 billion, up from the revised 2018-19 target of £9bn. In layman’s terms, NS&I is looking to raise £11bn from savers, in the current tax year. 

Another recent blow was to existing customers with Index Linked Certificates, as future index linking will be based on the Consumer Prices Index (CPI) rather than the Retail Prices Index.

The change will be applied to all maturing Certificates where customers choose to renew into a new Certificate. 

It was another blow to NS&I customers, but not surprising. It’s been a long time coming as RPI is so much higher than CPI (in August 2019 RPI was 2.60% compared to CPI which was 1.70%)   and it would appear that most other index-linked benefits have moved to CPI some time ago.

But as these certificates are still tax-free accounts and effectively will guarantee to remain in line with inflation, albeit as a lower rate, they will continue to offer good value for many customers, especially tax payers who are fully utilising their personal savings allowance.

NS&I is a national treasure for many but recent events means that it does not offer as much opportunity as it once did, so to look at alternatives to NS&I, that offer better returns look at our article NS&I alternatives 

That said, for those with large cash deposits, NS&I still offers a safe haven for those who want their cash to be protected – but without the hassle of opening and monitoring multiple savings accounts. We discuss why NS&I is attractive in our article why is NS&I so popular.  

It isn't always easy to work out what to do with your cash savings, this is why having an adviser is so important. Get in touch to speak to a financial adviser about your financial goals.