Could NS&I cut savings rates after another record month of Premium

National Savings and Investments is speeding towards the £35billion it aims to raise from savers this year after another record month of Premium Bond purchases. 

There were 1.809billion more £1 Bonds in this month’s prize draw than in August’s after billions were poured into Britain’s best-loved savings product in July, an increase on the £1.746billion purchased in June.

It is the fifth successive month of record purchases of Premium Bonds and it means more than £8billion has flowed into them between March and July. 

But every month of record buys takes NS&I closer to its fundraising target for the whole of 2020-21, requiring it to make the decision as to whether to once again increase the £35billion ceiling, cut its rates or even gate its best buy accounts to new customers.

Prime cut? NS&I will reach its £35bn fundraising target within months at current levels, leaving it with a decision over whether to cut rates or raise the ceiling again

Prime cut? NS&I will reach its £35bn fundraising target within months at current levels, leaving it with a decision over whether to cut rates or raise the ceiling again

Prime cut? NS&I will reach its £35bn fundraising target within months at current levels, leaving it with a decision over whether to cut rates or raise the ceiling again

NS&I’s decision earlier this year to reverse proposed interest rate cuts to its variable rate accounts, including Premium Bonds, has seen it almost single-handedly prop up the best buy savings tables and been deluged by savers.

It announced in July the amount it hoped to raise from savers in 2020-21 would be raised from just £6billion to £35billion, revealing that a net £14.5billion had been saved into its accounts between March and June, more than a third of which went into Premium Bonds.

At the rate it raised money from savers over those three months its £35billion target would be hit by October, but the latest Premium Bond figures reveal the amount being saved each month is still increasing.

Meanwhile, households saved another £7billion in July, according to figures published today by the Bank of England, although this was lower than the average £17.25billion saved between March and June.

Between March and July an average of £1.61billion was poured into Premium Bonds each month, as savers flush with furlough cash or extra savings opt for the tax-free Bonds as an alternative to the record low savings rates available elsewhere.

How savers have piled billions into Premium Bonds during the lockdown 
Month Total Premium Bonds in the draw New Bonds in the draw
June 2019 81,180,745,735
July 2019 81,646,957,120 466,211,385
August 2019 81,979,282,936 332,325,816
September 2019 82,518,577,254 539,294,318
October 2019 83,121,568,735 602,991,481
November 2019 83,678,794,092 557,225,357
December 2019 84,379,826,041 701,031,949
January 2020 85,042,266,956 662,440,915
February 2020 85,346,436,256 304,169,300
March 2020 86,147,886,134 801,449,878
April 2020 86,430,926,941 283,040,807
May 2020 87,664,243,494 1,233,316,553
June 2020 89,218,660,280 1,554,416,786
July 2020  90,917,241,141  1,698,580,861‬ 
August 2020  92,663,149,308  1,745,908,167
September 2020  94,472,953,474  1,809,804,166 
Source: NS&I 

Savers can hold up to £50,000 worth of Premium Bonds. They do not pay interest, but savers are entered into a prize draw with the chance of winning anything from £25 to £1million each month, giving an effective prize fund rate of 1.4 per cent.

Bonds become eligible for the draw having been held for a full month after purchase, meaning the number of new Bonds in the draw gives an indication as to how much money is being saved with NS&I, although it does also include reinvested winnings.

Prior to the coronavirus lockdown, just over 500,000 new Bonds a month were added to the prize draw between May 2019 and February 2020, a figure which has more than trebled over the five months between March and July.

Premium Bonds Winners

Prize Area Value of bond
£1,000,000 Wales £5,000
£1,000,000 South Scotland £5,000
£100,000 Wales £500
£100,000 Kent £50,000
£100,000 Kent £40,000
£100,000 Wandsworth £10,000
£100,000 Gloucestershire £50
£100,000 Hereford and Worcester £10,000
More September 2020 winners

View list of September 2020 winners

There were nearly 94.5billion Bonds in the September draw, when Premium Bonds bought in July became eligible, while the Treasury-backed bank held £193.7billion in total at the end of June.

The consistently record increases mean NS&I and the Treasury could soon have to decide what to do next, with NS&I having to give 60 days’ notice ahead of any cuts to variable rate accounts. 

It will release how much savers have deposited with the bank between July and September later this autumn.

This month, the two jackpots were won by a man in Wales and a woman from Scotland, with holdings of £17,745 and £10,000 respectively.  

As well as Premium Bonds, NS&I’s other easy-access accounts include its Income Bonds paying 1.15 per cent monthly interest, its Direct Saver paying 1 per cent and its Direct Isa paying 0.9 per cent, all of which top This is Money’s respective best buy tables.

At the start of June Goldman Sachs-backed Marcus Bank closed the doors of its easy-access account, which paid one of the best rates around, to new customers, after it received around £4billion in deposits from rate-starved savers over the course of the lockdown, which left it close to breaching British retail banking rules.

Experts have previously warned that any reductions by NS&I could lead to another round of brutal cuts to savings rates, reversing the slight recovery seen towards the end of the summer.

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