Why I worry Premium Bond charges may take a hammering: SYLVIA MORRIS
When Chancellor Rachel Reeves delivers her Budget in two weeks all eyes will be on what tax-rise horrors she has in store.
But I’ll be looking out for another, probably under-the-radar, announcement that will have huge implications for 24 million savers.
Hidden in the small print could be how much HM Treasury wants National Savings and Investments (NS&I) to bring in this year.
NS&I sets its interest and premium bond rates to meet this sum – its ‘net financing target’.
Key target: NS&I sets its interest and premium bond rates so that it meets its ‘net financing target’ – which is the amount HM Treasury wants it to bring in over the year
When NS&I gets a high target, it prices its products competitively to attract deposits. If it closes in on its target too early, it cuts rates.
The target won’t be given in the Chancellor’s speech – it is usually published after a Budget speech.
Sometimes this target, which runs from April 1 to March 31, is even changed mid-way through the year.
And it could happen with a new Government and Chancellor. But I wouldn’t be surprised if NS&I cuts prize rates soon unless its target is raised in this Budget.
The figure it needs to raise this financial year ending in March next year is £9 billion.
Check the best cash Isa rates in our savings tables
But it can go £4 billion either side, so it is looking to bring in £5 billion to £13 billion. Watch out for the target. If it rises, rates may stay higher for longer.
Bank of England figures show it pulled in £3.3 billion between April and August, meaning it could raise just under £8 billion over the year if money flows in at the same rate.
However, its popularity has been growing since summer, which means NS&I may cut rates so that it does not overshoot its target – unless given leeway.
Savers have piled in as NS&I variable rates have not altered since the Bank of England base rate fell from 5.25 per cent to 5 per cent in August. Banks and building societies, however, have cut rates.
Premium Bond prize draw rate is still at 4.4 per cent. It is attractive, compared with ordinary easy-access accounts where top rates are from 4.5 to 4.87 per cent. Prizes are tax-free.
The rate on its Direct Saver easy-access account remains attractive – it was raised from 3.65 per cent to 4 per cent in May. It’s a good option for those who like to know their money is backed by the Government.
It also bumped its Income bonds to an annual 4 per cent – attractive to pensioners as they pay 3.93 per cent interest each month.
Its Direct Isa is unchanged at 3 per cent – a poor rate but better than that paid by most of the big banks.
