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 changes are shown in the table below for products which are open to new investment:
|Product||Old rate||New rate|
|Direct ISA||0.75% tax-free/AER||1.00% tax-free/AER|
|Direct Saver||0.70% gross/AER||0.95% gross/AER|
|Income Bonds||0.75% gross/AER||1.00% gross/AER|
|Investment A/C||0.45% gross/AER||0.70% gross/AER|
|Junior ISA||2.00% gross/AER||2.25% gross/AER|
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.
Steve Simmons, Independent Financial Adviser at Pembroke Financial Services of Shoreham says “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. Call us for Investment and Savings advice on 01273 774855 or email us by clicking here.
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.