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:
|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.
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.
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.