Frozen NS&I financing targets final signal that savings rates have peaked

Savers could see National Savings and Investments cut rates on accounts and Premium Bonds prizes, experts warn.

The Treasury-backed bank says it hit its fundraising target for the year with an excess of £2.3billion, raking in £9.8billion from savers over the past six months.

Much of this cash arrived from savers who ploughed into its bumper 6.2 per cent one-year fix launched in late August and pulled in early October.

In yesterday’s Autumn Statement, the Government did not change the target for how much it wants NS&I to raise in the current tax year – freezing it at £7.5billion.

Frozen: NS&I met its funding target for this year with an excess of £2.3billion. It will not need to raise money by hiking savings rates or increasing the Premium Bonds prize fund

Now, experts say savers should brace themselves for rate cuts on NS&I accounts and for the Premium Bonds prize fund to fall instead.

NS&I has generous wiggle-room of £3billion either side of that target, so it can only raise another £700million in the next six months before it breaches its extended target.

This means it will not need to raise rates or add more prizes to raise money to meet its fundraising target.

There was hope savers would see the opposite, with rates being increases and Premium Bonds prizes added amid reports the Government was seeking to increase NS&I’s fundraising target.

Laura Suter, of AJ Bell, says: ‘This has a direct impact on savers, who will see NS&I accounts become less attractive in the coming months.

‘NS&I raises rates to draw more savers in – if it doesn’t need to attract any more money it will cut those rates.’

NS&I has already pulled its best buy Guaranteed bonds and cut the rate on its Green Savings Bond, so now experts think it’s highly likely that other accounts will be up for the chop too.

NS&I’s 6.2 per cent Guaranteed Growth bonds helped keep competition high in the one-year fixed tables.

When it was pulled after five weeks of being on sale, rates on one-year fixed-rate accounts started to slip.

Laura Suter adds: ‘Over the past two years NS&I has hiked the effective prize fund on Premium Bonds – taking it to a 23-year high in August – and often making it the market-leading account. But as other providers take the axe to savings rates, NS&I will follow suit.

‘This is another sign for savers to shop around and nab the best rates before they fall further.’

Moneyfacts data shows that the interest rates on fixed rate bonds is falling already.

The rates monitor revealed that for the first time since 2021, the rates one fixed-rate accounts have fallen across the board.

This should be a further warning to savers that they may have already seen the best that savings rates have to offer.

Bad news for Premium Bonds prize fund

For the first two quarters of the year, NS&I has raised £9.9billion against an annual target of £7.5billion.

For the remaining six months of the financial year, NS&I doesn’t need to hike rates or Premium Bond Prize pot.

In November’s draw there were 90 £10,000 prizes and 181 £50,000 prizes.

There have been seven underlying prize fund rises since June 2022, taking the prize rate from 1.4 per cent to 4.65 per cent.

But the odds of winning a £1million prize have grown longer.

This is because since 2005, there have been two £1million jackpots each month (excluding a few special one-off draws). The first of those £1million prizes was launched in April 1994.

Now it looks even less likely that Premium Bonds savers will see an increase in the Premium Bonds prize fund.

Andrew Hagger, founder of personal finance website MoneyComms, says: ‘If anything, we’re more likely to see cuts to these in order to manage the flow of funds to and from consumers.

‘I’m convinced we’ve reached the peak for the Premium Bonds prize pot for now and wouldn’t be surprised to see this lowered at least once in the remaining six months of the financial year.’

One savings expert doesn’t expect to see any changes ahead of the end of NS&I’s financial year in March 2024.

James Blower, founder of website Saving Guru says: ”Premium Bonds account for around 56 per cent of NS&I’s book so looks most vulnerable to a cut, should NS&I need to slow volumes

‘However, recent months have seen growth in Premium Bonds of just a few £100million and, with the prize pool at 4.65 per cent, it’s beaten by several easy access rates.

Therefore, I see little rationale for immediate price cuts and suspect there will be no changes ahead of its financial year end in March 2024.’