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Tuesday, March 21, 2023

Why Premium Bond rates are about to rise

In 2020 then-Chancellor Rishi Sunak attempted to raise NS&I’s financing target from £6bn to around £35bn, although the final figure raised was just £23bn.

Once enough money has been raised, NS&I typically reduces its rates. Ms Coles said: “That is what happened with the pandemic fundraising, although some products remained competitive. Once the coffers have been filled, they aim not to be the most competitive in the market.  

“But if they reduce the rate again, lessons must be remembered from the pandemic. Dropping the rate then triggered an exodus from NS&I which created problems with customer service and longer wait times,” she added.

The fundraising drive could also result in a brand new savings deal from NS&I. In the Spring Budget of 2014 George Osbourne announced a “best-buy” Pensioner Bond, which paid an annual interest rate of 4pc over three years and 2.8pc over one year.

The then-chancellor said the bonds were intended to provide “certainty and comfort” for over 65s. More than a million older savers pumped £13bn into the bonds, which were on sale between January and May 2015.

Ms Coles added: “Launching a brand new product could be on the cards given how successful it has been in raising money in the past.

“Another option would be to reignite index bonds, making them available to new savers and not just existing customers. But that would be very costly and savers would absolutely bite their arm off for it.”

NS&I’s currently has a target of raising £6bn this financial year. Any increase in the target is unlikely to be much higher than recent historical averages of around £10bn because of increasingly competitive interest rates offered elsewhere in the market

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