ERNIE to cut back

ERNIE to cut back

The number of Premium Bond prizes is to be reduced, and National Savings and Investments is also cutting savings rates on a number of its products.

From June 2016, the chances of winning a Premium Bond prize will change from 26,000 to one, to 30,000 to one.

The savings rates on Direct Isas, Direct Saver, Income Bonds and the Investment Account will also be cut.

NS&I said the new rates would still be competitive with other savings rates in the market.

Direct Isa rates were previously reduced in November 2015.

Variable Rate Savings Products
Product Existing rate New rate (from 6 June 2016)
Direct Isa 1.25% tax free 1% tax free
Direct Saver 1.10% gross 0.8% gross
Income Bonds 1.25% gross 1% gross
Investment Account 0.75% gross 0.45% gross (from 1 July)
source: NS&I

“This is another serious blow for savers who like the absolute security offered by NS&I, but now face even lower returns on their cash,” said Danny Cox of Hargreaves Lansdown.

However, NS&I defended its decision to cut savings rates, which follows a continuing reduction in returns to savers from banks and building societies over the past seven years.

“The majority of the new interest rates on offer are either at, or above, average market rates,” said Jane Platt, the chief executive of NS&I.

“We believe they present a fair offer to customers, who will also continue to benefit from our 100% HM Treasury guarantee on all holdings, as well as tax-free prizes for Premium Bonds.”

Premium Bond Changes
Current rate New rate (from 6 June 2016)
Prize fund 1.35% tax free 1.25% tax free
Winning odds 26,000 to one 30,000 to one
Total value of prizes £67.5m £62.9m
Number of prizes 2.3m 2m
No. of £1m prizes (per month) 2 2
No. of £100,000 prizes 5 2
No. of £50,000 prizes 12 5
No. of £25,000 prizes 22 9
No. of £10,000 prizes 53 24
No. of £5,000 prizes 110 46
No. of £1,000 prizes 1352 1257

NS&I has been told by the Treasury to raise less money for the government in 2016/17 than it did in the current tax year.

One reason is that it is currently cheaper for the Treasury to raise money by issuing government bonds than through NS&I.