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Premium Bonds: Are NS&I rate cuts on the way?

Premium Bonds: Are NS&I rate cuts on the way?
Paloma Kubiak
Written By:
Paloma Kubiak

NS&I has attracted nearly £10bn from savers in just six months – overshooting its target for the whole year – leading to suggestions rate cuts may be on the cards.

The Government’s savings arm – NS&I – confirmed it has drawn £7.7bn in deposits from savers in Q2 2023/24.

Together with Q1’s figures, it means NS&I has raked in £9.8bn in just six months.

At the same time, it has exceeded its funding target for the financial year, with six months still to go.

However, NS&I’s Net Financing target for 2023/24, set at the Spring Budget 2023, is unchanged at £7.5bn, plus or minus £3bn.

‘Savers should brace themselves’

For Laura Suter, head of personal finance at AJ Bell, this signals potential NS&I rate cuts could be on the way.

She said: “Savers should brace themselves for rate cuts on NS&I accounts and for the Premium Bond prize fund to fall – as the Government-backed provider has already exceeded its fundraising target for the tax year.

“The success of NS&I’s one-year guaranteed bonds this summer saw huge numbers of savers put their money in the accounts and means that the provider leapt past its £7.5bn annual fundraising target in just six months.

“The small print of the Autumn Statement yesterday confirmed that the Government hasn’t changed the target for how much it wants NS&I to raise in the current tax year – sticking firm at £7.5bn. It gives the provider generous wiggle-room of £3bn either side of that target, meaning it can only raise another £700m in the next six months before it breaches its extended target.”

‘Delicate balancing act’

Suter added that all this technical detail has a direct impact on savers, who will see NS&I accounts “become less attractive in the coming months”.

She said: “The Government-backed provider raises rates to draw more savers in – if it doesn’t need to attract any more money it will cut those rates. It has to play a delicate balancing act to avoid mass withdrawals that counteract the inflows it’s already seen this year – so a slow and steady approach to cuts is more likely than a giant axe to rates.

“We’ve already seen NS&I pull its guaranteed bonds and cut the rate on its Green Savings Bond, but it’s highly likely that other accounts will be up for the chop too. Over the past two years NS&I has hiked the effective prize fund on Premium Bonds – taking it to a 23-year high in August – and often making it the market-leading account. But as other providers take the axe to savings rates, NS&I will follow suit.

“This is another sign for savers to shop around and nab the best rates before they fall further. Moneyfacts data shows that the interest rates on fixed rate bonds are falling already, giving further fuel to the idea that savers may have already seen the best that savings rates have to offer.”