The savings battle took another twist yesterday as NS&I upped rates on its popular Premium Bonds, Income Bonds and Direct Saver easy-access account.
From next month, there will be an extra £15 million in Premium Bond prizes up for grabs as the Government-backed bank raises the prize fund rate from 3.15 per cent to 3.3 per cent.
That is 0.05 percentage points higher than the best-buy easy-access rate of 3.25 per cent from Swansea BS.
– Check out the best easy-access savings rates here.
Better returns: NS&I has upped the rates on its popular Premium Bonds, Income Bonds and Direct Saver easy-access account
It is the fifth rise in the Premium Bonds prize fund since it started to climb last June. But the odds of winning a prize stay the same — at 24,000 to 1.
That’s because NS&I has once again cut the number of £25 smaller prizes, but raised the number of £50 to £100,000 ones.
NS&I expects to pay out 248 prizes of £25,000 (up 12 on this month’s draw) and 123 (up six) at £50,000. The number of £100,000 prizes is up three to 62, while two £1 million jackpots remain.
NS&I has also boosted the rate on its Income Bonds and Direct Saver to 2.85 per cent.
Kevin Mountford, co-founder of savings platform Raisin UK, says: ‘The big question is now how much does the Government need to borrow?
This latest move is either because NS&I needs to build up its coffers as a result of money flowing out, or is it a new campaign to bring in extra?
‘When NS&I offers top rates, it causes a dent in money going to banks and building societies. They will need to become more competitive if they want to attract money.’
Premium Bonds are the jewel in NS&I’s crown. The move means it is now beating the majority of the best-buy easy-access accounts. Other savings organisations with their own prize draws don’t compete.
Pick of the bunch is Halifax. It gives away 1,603 prizes a month to savers who have at least £5,000 with the bank — three of £100,000, 100 of £10,000 and 1,500 of £100 prizes.
It has given away £75 million since the start in 2011, against the near five million prizes paid out just this month by Premium Bonds, worth nearly £314 million.
As NS&I increasingly pays top rates, we take a look at how they match up with those offered by banks and building societies.
Favourite: Premium Bonds are NS&I’s top account with £119.5bn of savers’ money tied up hoping to win a monthly prize between £25 and £1m
Easy-access
Direct Saver, NS&I’s easy-access account, has also been boosted this week and now pays 2.85 per cent — the highest since it launched in March 2010. You can open and run this account online or on the phone.
You can do slightly better with other internet-based accounts, such as Shawbrook Bank, which increased its rate to 3.01 per cent last week.
Skipton BS Base Rate Tracker Issue 4, on offer through the post, online and branches, pays 2.9 per cent.
It comes with a guarantee to pay 1.1 points less than the base rate for 24 months. If the base rate does rise again, you know you will benefit in full.
- Sylvia’s Verdict: Highly competitive rate — worth your time.
Income Bonds
Income Bonds from NS&I were also boosted and pay 2.85 per cent. They are popular with pensioners, because your interest is paid each month directly into your bank account and you can open an account by post, phone or online.
Newbury Building Society pays a higher 2.9 per cent on its Senior Saver. You can open an account online, by post or in its branches, if you are aged 55 or over and live in England and Wales.
Others which pay slightly better rates on online accounts include Shawbrook Bank at 2.97 per cent, while the Skipton Base Rate Tracker pays 2.86 per cent monthly.
- Sylvia’s Verdict: Again, this is a good rate from NS&I, which I predict will be popular.
One-year fix
This new one-year Guaranteed Growth Bond from NS&I pays 4 per cent fixed for one year — up there with the best accounts. The top rates come from Close Brothers, Secure Trust and Atom (through its app), all at 4.15 per cent.
Competitive: The new one-year Guaranteed Growth Bond from NS&I pays 4% fixed for one year — up with the best accounts
Coventry BS pays 4.1 per cent for a slightly longer term with the rate fixed to April 30 next year — this is available online, through its branches or by post.
- Sylvia’s Verdict: The Guaranteed Growth Bond is offering a competitive rate — and I think it could sell out quite quickly.
Monthly income
NS&I’s monthly income version, named the Guaranteed Income Bond, pays 3.9 per cent for a year.
Top payers include Atom at 4.07 per cent and Coventry at 4.02 per cent.
That gives you around £32 a month on each £10,000 with NS&I, only around £2 less than the £33.90 you would see from Atom.
- Sylvia’s Verdict: NS&I has launched a very competitive rate.
Cash Isa
The NS&I Direct Isa is also an easy-access account, but pays less than its Direct Saver. In this tax-free Direct Isa, you earn 2.1 per cent.
This rate difference makes the Isa a non-starter if you don’t pay tax.
You also lose almost all your tax advantage as a basic-rate payer. You’ll earn 2.1 per cent in the Isa and a better 2.28 per cent in the Direct Saver after basic rate tax.
There are plenty of better deals elsewhere. Shawbrook Bank’s online account pays 2.91 per cent, Cynergy Bank 2.85 per cent and Yorkshire BS Internet Isa Plus 2.75 per cent.
- Sylvia’s Verdict: Go elsewhere for better rates.
Junior Isa
NS&I’s Junior Isa pays 3.4 per cent for those saving for their children until they reach 18 — online only.
This rate is much better than some of the big banks such as Lloyds’ 2 per cent and Halifax’s 2.5 per cent.
But you can do better with your local building society. For example, Bath pays 4.8 per cent, rising to 5 per cent next month, while Skipton and Swansea both pay 4 per cent.
- Sylvia’s Verdict: Not a bad rate.
Tax advantage: The NS&I Direct Isa is also an easy access account, but pays less than its Direct Saver. In this tax-free Direct Isa, you earn 2.1%
Three-year fix
NS&I has boosted the rate on its Green Savings Bonds to 4.2 per cent for three years — up from 3 per cent. You can earn a whisker more at Secure Trust and Close Brothers — both have a top rate of 4.25 per cent.
But there could be a tax sting in the tail when saving over 36 months with NS&I. All interest earned over the three years is added when the bond matures and all taxed in that year.
On £10,000, your total interest will amount to £1,313.60, meaning you bust your personal allowance of £1,000 as a basic-rate taxpayer or £500 as a higher-rate payer.
On most fixed-rate bonds, your interest is paid each year and you pay tax in the same year.
- Sylvia’s Verdict: Look to see what other green providers, such as Triodos Bank UK and Ecology BS, have to offer.
sy.morris@dailymail.co.uk
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