The Bank of England (BoE) decision to raise the base interest rate from 0.25% to 0.5% means that hopefully banks will be pushing their interest rates up to match, which could be great news for savers. National Savings and Investments (NS&I) are among the first to announce their response to the rate hike.
All NS&I variable rate products will see an interest rate rise of 0.25% from 1st December 2017. This will affect those who hold the following account types:
- Direct ISA
- Direct Saver
- Income Bonds
- Investment Account
- Junior ISA
Most interestingly, NS&I will be increasing the prize fund rate on Premium Bonds.
The monthly prize pool will rise from £68.3 million to £83 million. In addition, the odds of each number being drawn will increase from 30,000:1 to 24,500:1, beginning with the December 2017 draw. This will mean that that the average returns on Premium Bonds will hit 1.40%.
What are Premium Bonds?
Premium Bonds offer a method of saving which is tax-free, but offers no regular interest. Each £1 deposited is assigned a unique reference, which is then entered into a monthly lottery draw. The prize fund is distributed to the winners in amounts ranging from £25 to £1 million.
Each month, there are two £1 million prize draws and over two million £25 winners. The changes being made in reaction to the BoE rate hike will mean that, from December, 530,361 more winners will be drawn each month.
Anyone over the age of 16 can buy Premium Bonds. However, Premium Bonds can be bought in the name of an under-16 by their parents, grandparents and great grandparents. Accounts must be opened with a minimum of £100, unless a monthly direct debit of £50 is set up. After this, the holder can pay in deposits as low as £1.
The maximum amount one can hold in Premium Bonds is £50,000. Savings can be withdrawn at any time, without incurring tax, but entries into prize draws (and thus, the chances of winning) will decrease with each £1 removed.
Discussing the changes, Ian Ackerley, NS&I Chief Executive, said:
“NS&I is pleased to be able to offer savers increased rates across our variable products. By reflecting the change in the base rate, we are continuing to meet the needs of savers, whilst also balancing the interests of taxpayers and the stability of the broader financial services sector.
“For our 25 million customers, including around 21 million Premium Bonds customers, these changes will present a welcome boost. NS&I will be giving out the largest number of Premium Bond prizes every month, an estimated 2.9 million, and all money invested is 100% secure, as NS&I is backed by HM Treasury.”
To discuss your savings and the effects of the BoE rate hike on your accounts, feel free to contact us.