- NS&I has raised just a third of its target, and may need to hike rates to make up
National Savings and Investments (NS&I) could hike Premium Bond prize rates, experts say, as it has only raised £3.3billion in the current financial year.
The spring Budget in March 2024 set NS&I’s net financing target for 2024-25 at £9billion, with wiggle room of plus or minus £4billion.
This means NS&I has a way to go before it meets its fundraising target, which has a range of £5billion to £13billion.
When NS&I is behind on fundraising targets it can respond by raising savings rates, as when it launched its best-selling 6.2 per cent Guaranteed Growth and Income Bonds in March 2024.
NS&I can also respond by changing the Premium Bonds prize fund rate, as it did when it cut the prize fund rate this month to 4.15 per cent so as not to overshoot its fundraising target.
NS&I raised £11.3billion of net financing for the Government in the financial year 2023/24, the Treasury-backed bank revealed in its latest annual report and accounts.
It means it overshot its financing target of £7.5billion, with a leeway of plus or minus £3billion for a range of £4.5billion to £10.5billion.
It’s 6.2 per cent Guaranteed Growth & Guaranteed Income Bonds played a major role in this as they proved massively successful with savers.
NS&I chief executive Dax Harkins said: ‘By [last] summer, we were significantly behind our net financing target – despite successive rate increases to our variable and fixed products.
‘In response, we launched new one-year Issues of our popular Guaranteed Growth Bonds and Guaranteed Income Bonds.’
Experts say that Premium Bonds rates could rise, despite the recent cut by NS&I.
James Blower, founder of wesbite Savings Guru, said: ‘NS&I are actually a bit off track with their funding. But if they repeated the last quarter performance over the next two they’ll be at around £8.5billion, so nicely on track for the £9billion target they have.’
Premium Bonds have already had a prize pool cut announced, with the pot coming down by 0.25 per cent for the December draw. It will stand at 4.15 per cent, down from its current level of 4.4 per cent and the odds of winning a prize will lengthen from 21,000 to one to 22,000 to one.
NS&I said the change in the prize fund was in response to a ‘changing savings market’ as well as a need to not overshoot its net financing target, as set out by the Treasury.
At the same time, NS&I announced it would cut the rate on its Direct Saver Bonds from 4 per cent to 3.75 per cent from 20 November.
Income Bonds will also fall to 3.75 per cent from 4 per cent. It marks the first time NS&I has reduced interest rates for Direct Saver and Income Bonds since November 2020.
Blower said: ‘This appears to be NS&I factoring in the almost certain base rate cut coming next Thursday where it will be a huge surprise if the base rate doesn’t drop 0.25 per cent to 4.75 per cent.
‘Given that Premium Bonds account for almost 60 per cent of NS&I’s book now, they are the key product to change if NS&I want to really impact flows. I suspect they will move the rate on Premium Bond’s largely in line with the base rate now.
‘What the really interesting thing about the results is that both quarters saw outflows of balances from NS&I. The “growth” is made up of accrued interest on accounts.
‘Given that rates are almost certainly going to fall in 2025, this figure will shrink as there will be less accrued interest. While unlikely to impact in this financial year, it could impact in future ones as NS&I may have to either increase rates, or reduce them by less than the base rate, to both increase the accrued interest and ease the outflows of balances it is seeing.’
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