We’ve had a few quiet weeks from NS&I but the good news is back, this time for Premium Bond holders and children. For the first time since March this year, NS&I has increased the rate of interest that applies to the money in the prize draw fund, this time in a leap up from 3.30% to 3.70% - and this will swell the amount of prize money up for grabs to £374m.
It’s the highest rate for Premium Bond holders for 15 years, although the odds for each £1 to win a prize remains unchanged at 24,000 to 1.
This is because there will actually be a similar number of prizes up for grabs, but more prizes of between £50 and £100,000 but over 1.5 million fewer £25 prizes, as the chart below shows. The number of £1m jackpot prizes will remain at two.
Source: NS&I
Although not a standard easy access account, Premium Bonds are measured against this type of account as there is instant access to the cash should it be needed. But while the money is held in Premium Bonds, the saver does not earn interest, but instead has a chance of winning tax free prizes in the monthly prize draw.
A rate of 3.70% is competitive when compared to the best easy access accounts, although you can now earn up to 4.10% elsewhere. And with those with smaller holdings less likely to win a prize, some may have been thinking that it's time to switch in order to earn a more predictable return.
For example, on a holding of £5,000 if you win no prizes at all over the course of 12 months, you would have missed out on £205 in gross interest with your cash in the top paying easy access account. That said, of course with the Premium Bonds, you might just earn one of the bigger prizes, blowing the interest option out of the water.
The decision comes down to how lucky you think you will be. But Premium Bond holders who may have been on the cusp of cashing in for more secure returns from other cash savings account will possibly pause for a beat to see if they might just benefit from this increase to the prize fund. Certainly, this is great news for higher and additional rate taxpayers as any prizes earned are tax free.
NS&I Junior ISA (JISA) rate increases too
Children with cash in the NS&I Junior ISA will also see a boost to the interest they will earn, as the rate has been increased to 3.65%, up from 3.40%. This is less exciting news as far better rates can be found elsewhere. The top JISA on our best buy table is the Coventry Building Society Junior Cash ISA (2) which is paying 4.30%. On a deposit of £9,000, which is the current annual JISA allowance, your child would earn £58.50 more with Coventry over 12 months, £387 as opposed to £328.50.
So, it could pay to switch, but bottom line is that an increase is good news and hopefully it’ll help to maintain the competition in the rest of the market, keeping rates going in the right direction.
@savingschampion
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