NS&I cuts to Premium Bond prizes and savings rates hit 21 million customers

NS&I said the move follows reductions in interest rates across the savings market


Millions of savers have been dealt another blow as NS&I has announced a wave of cuts to its Premium Bond prizes and savings rates.

In a move affecting more than 21 million customers, the changes taking place from May 1 will apply to Premium Bonds, the Direct Isa, the Direct Saver and Income Bonds.

NS&I (National Savings and Investments) said the move follows reductions in interest rates across the savings market, after the Bank of England base rate was cut to 0.25% in August.

Money held with NS&I is 100% backed by the Treasury. NS&I has a duty to balance the needs of savers and taxpayers and help ensure the stability of the broader financial services sector.

The changes will see a 1% rate on NS&I's Direct Isa fall to 0.75%, a 0.8% rate on its Direct Saver will fall to 0.7% and a 1% rate on Income Bonds will fall to 0.75%.

The estimated number of Premium Bonds in May will be 2,219,493, down from 2,224,513 in February.

The total value of Premium Bond prizes in May will be an estimated £63,810,400, down from £69,516,050 this month.

Steve Owen, acting chief executive, NS&I, said: "The new rates reflect current market conditions and allow us to continue to strike a balance between the needs of our savers, taxpayers and the stability of the broader financial services sector.

"We appreciate that savers will be disappointed, but we believe that the new rates present a fair offer to customers, who will continue to benefit from our 100% HM Treasury guarantee on all holdings, as well as tax-free prizes for Premium Bonds."

As announced in the Autumn Statement, NS&I is preparing to launch a new market-leading three-year savings bond this spring.

The rate is expected to be around 2.2% and the precise rate will be confirmed nearer to the launch. The bonds will be available to people aged 16 and over who have £100 to £3,000 to put away.

Danny Cox, a chartered financial planner at Hargreaves Lansdown, said: "This comes as little surprise but this cut in interest rates is another devastating blow for millions of savers and the new launch of Investment Guaranteed Growth Bonds will be of little compensation.

"Ironically, with so little interest on cash for savers, Premium Bonds look more attractive - if your savings are returning basically nothing, you might as well opt for the chance of the jackpot prize.

"NS&I will remain popular for their cast iron security but lower interest rates and rising inflation will test savers' patience and I expect more people to look to the stock markets for some of their cash to improve their long-term returns."