NS&I makes remarkable number of rate hikes

Following last week’s news that the Treasury-backed savings provider has launched a new issue of its 3-year fixed term Green Savings Bond paying 4.20%, it has this week announced yet more interest rate hikes. This 3 year bond is in addition to the reintroduction of the NS&I 1 year Guaranteed Growth Bond paying 4%, and the 1 year Guaranteed Income Bond paying 3.90% gross / 3.97% AER.

Firstly, another increase to the Premium Bond Prize fund – this time the rate is increasing from 3.15% to 3.30% - which will apply from the March 2023 prize draw.

That’s the third increase in the last three months and the fifth time the rate on the prize fund has risen in the last year. The latest hike will mean that there will be an extra £15m of prizes up for grabs.

The odds of each Premium Bond winning a prize will remain the same however, at 24,000 to 1, as once again there will be more of the bigger prizes and less £25 prizes available. For example, there are 243,000 less £25 prizes in March compared to February, but around 120,000 more £50 and £100 prizes.

Premium Bond holders who may have been on the cusp of cashing in for more secure returns from other cash savings accounts will possibly pause for a beat to see if they might just benefit from this increase to the prize fund. Certainly, this is great news for higher and additional rate taxpayers as any prizes they earn are tax free.

But the good news doesn’t stop there. With the easy access market seeing a surge in increased savings rates in recent weeks, this appears to have spurred on NS&I to try and keep up.

The rate on both the Direct Saver account and the Income Bonds account has increased from 2.60% AER to 2.85%, again particularly good news for those with larger cash holdings of over the normal Financial Services Compensation Scheme limit of £85,000. Someone with £500,000 in the Direct Saver account can expect to earn an extra £1,250 per year before tax – and all their cash is guaranteed by HM Revenue and Customs (HMRC).

But for those with smaller amounts, the recent activity in the easy access market means that they could earn more elsewhere.

Someone with £50,000 could earn £1,425 before tax in the NS&I Direct Saver over the next 12 months, assuming the rate remains unchanged. But if they were to move that cash into the best unlimited easy access account, they could earn 3.11% AER with Cynergy Bank – or £1,555 pa (£130 more per year before tax) and still enjoy the protection of the Financial Services Compensation Scheme (FSCS).

This recent increase in the NS&I rate is great news as not only can loyal NS&I customers benefit, but hopefully it’ll keep the competition alive in the rest of the market, keeping rates going in the right direction.

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