National Savings & Investments (NS&I) set a fundraising target of £7.5bn for the financial year ending in March 2024.
Last week, it exceeded this target – raising £11.3bn.
With no more room for some of the NS&I top prize rates, where can savers look for the best rates?
This article isn’t personal advice. If you’re not sure if an action is right for you, ask for advice.
Rate cuts and targets
There were signs in the mid-year stage it was going to undershoot its target, despite boosting the rate to 4.65% – a 24-year high.
So, in August 2023, it launched highly competitive one-year bonds, attracting a whopping £10bn.
NS&I thought as products matured in early 2024, people would naturally take their money out.
This didn’t happen.
So, NS&I tried to spark withdrawals by slashing the premium bond rates.
It cut the prize rate from 4.65% to 4.4%, hoping to start an exodus – but savers held on, leaving the NS&I to overshoot its fundraising target.
In the long term, this might not bode well for savers with premium bonds.
Bad news for premium bonds?
Over half the total money held by NS&I is in premium bonds. And that means when it needs to cut rates, we can expect them to be in the firing line.
With a lower target for the next financial year of £9bn, its one to keep an eye on.
Last week, the Bank of England cut interest rates for the first time in four years, and we’re expecting another before the end of the year.
So far, savings rates have proved remarkably robust.
However, they’re expected to fall as rate cuts kick in. Typically, NS&I will follow suit, and cut rates across the range.
And as a modest cut earlier this year didn’t have the impact it expected, we think NS&I will be more heavy-handed next time.
Some will choose to hang onto the bonds regardless, as the outside chance of a big win is worth the likelihood of winning nothing.
However, for others, it could be enough to persuade them to look for savings accounts or Cash ISAs elsewhere, especially while rates remain so strong.
New offers on the table
This month, NS&I is offering new British Savings Bonds, with a two-year bond at 4.6%. Their new three and five-year bonds come in at 4.35% and 4.10% respectively.
These are different from premium bonds in several ways.
There’s no prize draw to win big, they’re not tax free, you’re paid a fixed rate of interest over your term, and you can’t withdraw until your term ends.
On the face of it, these look like competitive rates, but there are better rates in the market.
For premium bond holders and those looking for better rates, it’s worth considering online bank accounts and cash savings platforms. These tend to offer far better rates than the high street.
Where can savers go for better rates?
Active Savings can help.
It brings some of the best rates on the market from different banks through one online account.
It means you can switch banks to find better rates all in one place, without spending lots of time shopping around yourself. Bear in mind that rates are added and withdrawn at any time.
It offers long and short-term fixed rates, as well as easy-access accounts.
Right now, there’s a one-year fixed term, with a rate of 5% AER. For two-year fixed terms, there’s a rate of 4.70% AER available as well and a five-year fixed term, there’s even a rate of 4.25% AER on the cards.
Alternatively, if you’re looking for an easy access account, the best Active Savings offers is 4.70% AER .Easy access rates are variable and withdrawals usually take 1 working day.
And, you can currently get cashback. Terms apply.
Remember, fixed rates don’t normally let you take out your savings until the term ends. It’s a good idea to make sure you’ve already built up an emergency savings pot you can get to quickly before fixing other savings.
This website is issued by Hargreaves Lansdown Asset Management Limited (company number 1896481), which is authorised and regulated by the Financial Conduct Authority with firm reference 115248.
The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised and regulated by the Financial Conduct Authority (firm reference number 915119). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money. Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 2122142).