NS&I increase interest rates and lower the odds of winning.

At the start of November, the Bank of England raised its base rate for the first time since 5 July 2007 and in the aftermath National Savings & Investments (NS&I) beat many of its banking competitors by announcing a 0.25% increase in its variable rate products.

Effective from 1st December the NS&I changes are shown in the table below for products which are open to new investment:

None of the non-ISA rates are particularly competitive. For example, at the time of writing the best instant access rates were around 1.3%. The Direct ISA is nearer the top of the league tables, although the recently launched Junior ISA lags behind.

Do you fancy your chances at 1 in 24,500…?

The Premium Bond prize fund interest rate was also boosted by 0.25%, from 1.15% to 1.40%.

NS&I used the increased prize fund to improve the odds of winning a monthly prize from 30,000:1 to 24,500:1, however the ’mix’ of prizes was not changed: 90% of the prize fund will continue to be paid in prizes of £100 or less. According to NS&I this will mean that in December 2017, 982 out of every 1,000 Premium Bond prize winners will receive the near-ubiquitous £25 prize.

That skew towards £25 prizes is indicative of the fact that, for complex statistical reasons, the averagely lucky Premium Bond owner will ‘earn’ less than 1.4% prize fund rate. The averagely lucky owner’s shortfall is made up by the handful of big prize winners who receive considerably more than 1.4%.

Whilst NS&I do offer Treasury-backed security for your money, this is a guarantee that you will pay for in terms of generally lower returns.

Before you put £50,000 into Premium Bonds hoping for £700 a year tax-free, do make sure you talk to us about your other options. Contact us for Investment and Savings advice.

Please Note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.