NS&I has increased the rates on its easy access accounts and the Prize Fund rate for Premium Bonds for the second time in just a matter of months. This is good news for NS&I savers and in particular for those who have large amounts of cash, as any money deposited with NS&I is protected by HM Treasury and you can add up to £1m into Income Bonds and £2m in the Direct Saver account.
Considering the best buy easy access rates have moved very little since the last improvement from NS&I in October this year, these new rates are actually pretty competitive. That said they are still not close to being added to the best buy tables. And we would still urge anyone who has money in the Investment Account to move to a better paying account.
What rate rises have occurred?
Direct Saver and Income Bonds – the rate has increased from 1.80% to 2.30%
Investment Account – the rate has increased from 0.40% to 0.60%
Although the rate on both the easy access Income Bonds account and the Direct Saver account is up from 1.80% to 2.30 AER better rates can be found elsewhere
For comparison, the best unlimited access easy access account currently available is 2.81% with Al Rayan Bank, and if you are happy to be restricted to just six penalty free withdrawals a year, Coventry Building Society’s Limited Access Saver (Online)(6) is paying 2.85% AER.
However, those with the postal only Investment Account will be very disappointed as the rate has been increased to a lowly 0.60% - that’s the same as a high street bank, so it’s time for customers holding this account to move their cash elsewhere. NS&I’s Income Bonds can be opened and managed by post too and that’s paying 2.30%. The key downside of the Income Bonds account is that the interest earned must be paid away to your current account monthly, it can’t be compounded. Even better, the best postal account is with the Chorley Building Society. Its Easy Access Saver Account (4 withdrawals) is paying 2.85% AER – although as the name suggests a maximum of four penalty free withdrawals are allowed per year. Any more and the rate will drop to 1% AER for the remainder of the year.
The rise in the Premium Bond prize fund is likely to be very well received and the good news is that this new prize fund rate will see the value of the prizes in the January draw swell by £76 million to just under £300 million. And whilst the number of prizes up for grabs will remain similar, far more of the larger prizes will be available, although the £1m prizes will remain at two per month. But the number of £100,000 prizes on offer next month will rise from 18 in December, to 56 in January and the number of £5,000 to be won will increase to 1,118 from 359.
The new rate of 3% is very competitive, as Premium Bonds are still effectively easy access, so this rate is higher than the current best buy easy access account on the market – that said, you won’t necessary earn that much.
A key thing to be aware of with Premium Bonds is that there is no guarantee that you will win anything and if you have only a small amount invested, there is a greater chance of this.
But with two £1 million prizes up for grabs each month, plus nearly five million other prizes of between £25 and £100,000, you could be one of the lucky ones. And any prizes won are tax free.
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