The Government’s savings arm overshot its fundraising target by nearly £1bn, which “doesn’t bode well for savers with Premium Bonds”.
NS&I delivered £11.3bn of net financing to the Government in 2023/24, which bust its target of £7.5bn, plus or minus £3bn. It should have raised between £4.5bn and £10.5bn as part of its net financing target, which measures the change in total inflows and outflows.
This means an overshoot of nearly £1bn in the tax year, with the bulk coming from its hugely successful but short-lived best buy 6.2% one-year Guaranteed Growth and Income Bonds. Indeed, these bonds attracted £10bn from savers.
The other hugely popular product – Premium Bonds – with £125.9bn in holdings of its total £230.5bn also attracted savers, despite attempts by NS&I to discourage capital.
NS&I stated as part of its annual report: “NS&I was on track to meet its net financing target in December 2023; however, while still substantial, repayments to customers in January and February 2024 did not materialise to the levels anticipated.”
Sarah Coles, head of personal finance at Hargreaves Lansdown, said it was a year of two halves.
She explained: “NS&I frantically boosted savings rates, taking the Premium Bond prize rate to a 24-year high of 4.65%, to try to boost savings, as it undershot its target.
“In August, it decided to tackle the shortfall with the launch of highly competitive one-year bonds, which attracted a blockbusting £10bn. It was comfortable with the mid-year overshoot, because it thought as products matured in early 2024, people would naturally withdraw their cash. However, they didn’t.
“In January, it announced a cut in the Premium Bond prize rate, effective from March, but it said this didn’t have as much impact as it expected.”
Coles added that in order to persuade savers to sell up, “there’s a risk that cuts could be more heavy-handed in future”.
She said: “Given that Premium Bonds make up well over half of all the money held in NS&I, they’re highly unlikely to be spared. And given that a modest cut earlier this year didn’t have anything like the impact it expected, we can expect NS&I to be more heavy-handed next time. It means savers may be facing a more significant cut.”
Currently, the odds of winning Premium Bonds stand at 21,000 to one for every £1 bond, with the annual prize fund rate at 4.4%. See YourMoney.com‘s guide to Premium Bonds to find out more about them.
Myron Jobson, senior personal finance analyst at Interactive Investor, said: “More broadly, with a cut in the base rate a question of when, not if, the best savings rates are on borrowed time. Those who can afford to put money away for at least five years or more should consider investing for the potential of long-term, inflation-beating returns that far outstrip savings rates.”
