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NS&I interest rate reductions

As you may be aware, NS&I recently announced interest rate reductions, effective from 24 November 2020, that will apply to NS&I’s variable rate products and some fixed term products. The Premium Bonds prize fund rate will also be reduced and apply from the December 2020 draw.

Please see below for the statement they issued:

  • NS&I must strike a balance between the interests of savers, taxpayers and the broader financial services sector.
  • Changes will ensure NS&I’s interest rates are aligned appropriately against those of competitors.
  • Interest rate reductions will apply to variable rate and some fixed term savings products, effective from 24 November 2020 – with changes to the Premium Bonds prize-fund rate effective for the December 2020 prize draw.

In July this year, NS&I’s Net Financing target for 2020-21 was revised from £6 billion (+/- £3 billion) to £35 billion (+/- £5 billion) to reflect the Government’s funding requirements due to the Covid-19 pandemic. In Q1 2020-21 (April-June), NS&I saw inflows of £19.9 billion and delivered £14.5 billion of Net Financing. Demand for NS&I products has remained at similarly high levels during Q2 (July-September).

The interest rate reductions announced will see NS&I align its savings products against the rates offered by the banks and building societies.

Ian Ackerley, NS&I Chief Executive, said:

“Reducing interest rates is always a difficult decision. In April we cancelled interest rate reductions announced in February and scheduled for 1 May. Given successive reductions in the Bank of England base rate in March, and subsequent reductions in interest rates by other providers, several of our products have become ‘best buy’ and we have experienced extremely high demand as a consequence. It is important that we strike a balance between the interests of savers, taxpayers and the broader financial services sector; and it is time for NS&I to return to a more normal competitive position for our products.”

Variable rate savings products

ProductCurrent interest rateInterest rate from 24 November 2020 (change in brackets)
Direct Saver1.00% gross/AER0.15% gross/AER (-85 basis points)
Investment Account0.80% gross/AER0.01% gross/AER (-79 basis points)
Income Bonds1.15% gross/1.16% AER0.01% gross/0.01% AER (-114/115 basis points)
Direct ISA0.90% gross/AER0.10% gross/AER (-80 basis points)
Junior ISA3.25% gross/AER1.50% gross/AER (-175 basis points)

Premium Bonds (effective from December 2020)

The Premium Bonds prize fund rate will be reducing by 40 basis points, from 1.40% to 1.00%. The odds of any £1 Bond number winning any prize will decrease from 24,500/1 to 34,500/1. The changes will be effective from the December 2020 prize draw.

Current prize fund rateCurrent oddsNew prize fund rate (from December 2020)New odds (from December 2020)
1.40% tax-free24,500 to 11.00% tax free34,500 to 1

Value of Premium Bonds prizes

Value of prizesNumber of prizes in September 2020Number of prizes in December 2020 (estimate)
£1,000,00022
£100,00074
£50,000149
£25,0002816
£10,0007143
£5,00014083
£1,0002,2041,639
£5006,6124,917
£10030,24426,637
£5030,24426,637
£253,786,4742,790,269
Total:3,856,0402,850,256

Fixed term savings products

On 24 November, NS&I is also reducing the rates on offer for its fixed term investments, by between 90 and 115 basis points. Fixed term investments are not on general sale and are only available to customers who wish to renew an existing investment when it matures. NS&I will write to all holders of Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates at least 30 days before their end of their term, outlining their options.

Customers holding Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates and whose investments mature on or before 24 November 2020 and who automatically renew into a new Issue of the same term, will receive the previous, higher interest rate. After this date customers who automatically renew into the same term will receive the lower interest rate from 24 December 2020.

However, any customers who choose to renew into a new Issue but a term of a different length, will receive the reduced interest rate effective from 24 November 2020.

Current holdings will be unchanged until they mature and customers do not need to take action now. NS&I will write to all holders of Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates at least 30 days before the end of their term.

ProductCurrent interest rateInterest rate from 24 November 2020 (change in brackets)
Guaranteed Growth Bonds(1-year)1.10% gross/AER0.10% gross/AER (-100 basis points)
Guaranteed Growth Bonds(2-year)1.20% gross/AER0.15% gross/AER (-105 basis points)
Guaranteed Growth Bonds(3-year)1.30% gross/AER0.40% gross/AER (-90 basis points)
Guaranteed Growth Bonds(5-year)1.65% gross/AER0.55% gross/AER (-110 basis points)
Guaranteed Income Bonds(1-year)1.05% gross / 1.06% AER0.06% gross / 0.06% AER (-100 basis points)
Guaranteed Income Bonds(2-year)1.15% gross / 1.16% AER0.11% gross / 0.11% AER (-115 basis points)
Guaranteed Income Bonds(3-year)1.25% gross / 1.26% AER0.36% gross / 0.36% AER (-90 basis points)
Guaranteed Income Bonds(5-year)1.60% gross / 1.61% AER0.51% gross / 0.51% AER (-110 basis points)
Fixed Interest Savings Certificates(2-year)1.15% tax-free/AER0.10% tax-free/AER (-105 basis points)
Fixed Interest Savings Certificates(5-year)1.60% tax-free/AER0.50% tax-free/AER (-110 basis points)

Sources:

https://www.nsandi-adviser.com/nsi-reduce-interest-rates-24-november-2020

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