Grim news last week for the 22 million of us who enjoy the monthly thrill of checking if we’ve had a Premium Bond win — and I fear more is to come.
As I predicted in Money Mail and This is Money, Government-run National Savings & Investments (NS&I) is cutting the amount it pays out in prizes.
The Premium Bonds prize rate will drop to 4.4 per cent, from 4.65 per cent, in March. That means £30.1 million less paid out — with 72,022 fewer prizes.
And I predict there will be more cuts as interest rates fall. Worse, there is a risk the rate will drop again even before the Bank of England base rate starts to go down from its current 5.25 per cent.
I am holding on to mine, at least for now — though I would have done better putting the money into my cash Isa given my winnings over the past year.
Fewer prizes: The Premium Bonds prize rate will drop to 4.4 pc, from 4.65 pc, in March. That means £30.1 million less paid out
I find Premium Bonds are great to hold money that’s needed soon, but may as well be put to work until then. I use them to put aside money for twice-yearly tax bills.
When a bill is due I just sell some and the money is in my current account within days.
Even better, winnings are tax-free — unlike interest from a standard savings account, which is taxable over the personal allowance of £1,000 for basic-rate and £500 for higher-rate taxpayers.
I do hold more bonds than are needed for tax bills, but I don’t plan to sell these even though the prize fund will fall. This is because they are fun, and if I sell, I will miss out if my number comes up.
Why more Premium Bond cuts are on the way
So why am I so sure more NS&I rate cuts are on their way?
Well, after offering a bumper year for savers, NS&I has effectively filled its bucket so now it has to stop it overflowing.
By reducing the prize fund of its most popular product, in which we hold about £125 billion, it is trying to limit the cash flowing in and avoid overreaching its target.
The Treasury has asked it to bring £7.5 billion into Government coffers from savers in its financial year — April 1 to March 31. It has a £3 billion leeway — so needs £10.5 billion at most. But by the end of September the £9.8 billion mark had already been reached.
In September, money flooded in when the prize fund was raised to 4.65 pc. More arrived when 225,000 savers took out its table-topping 6.2 pc one-year fixed-rate bond.
Experts think if inflation keeps falling, the Bank of England will cut interest rates to try to fire up the economy and cool the risk of recession. If so, more prize-fund cuts will follow.
Expert: Sylvia has been writing about savings deals for more than a quarter of a century
NS&I forecasts — which assume there will be the same amount of money in the bonds as in January — mean there will be 5.77 million prizes in the March draw, down from 5.84 million now.
There will still be two £1 million jackpots. The biggest hit comes in the prizes worth £100 and £50, down 232,182 apiece to 2,130,923 each. In this month’s draw there were 2,363,105 winners of each.
The £500 winners will drop by 3,735 to 53,325 and there will be only 17,775 winners of £1,000, or 1,245 fewer than this month. Dropping too by 124 to 1,697 are the number of holders who will win £5,000 while the £10,000 win will go to 848 holders, down by 64.
On very big prizes, only 339 people will win £25,000, down 26, the number of £50,000 falls by 12 to 170 and £100,000 by six to 85. However, the number of £25 prizes will rise by 397,554 to 1,435,338.
Skipton’s 5.5% savings deal
Some 1.2 million savers and borrowers can earn a top 5.5 per centon the new easy-access account from Skipton Building Society. You can open its Member Bonus Saver if you joined the society on or before January 11.
It gives an additional 1.7 percentage points on its standard Easy Access rate of 3.8 per cent for a year.
There is a drawback — the most you can put in is £3,000. But if you have that in its standard account, you can earn £51 interest in the year by shifting it to the new one.
TSB is offering £125 to anyone who switches from a rival bank to its Spend & Save or Spend & Save Plus current account through the Current Account Switch Service
TSB’s £125 to switch your bank
If you would like a nice payout in March and are on the look out for a new current account, TSB’s new switching deal may be worth considering.
It is offering £125 to anyone who switches from a rival bank to its Spend & Save or Spend & Save Plus current account through the Current Account Switch Service.
You can apply online, in branch or through its banking app. For the bonus, payable in late March, you must have at least two direct debits on the account, use your new debit card by March 15 and log into the TSB mobile app.
A cash payment is a nice incentive, but other factors are more important in the long term, such as its customer service, app functionality, availability of High Street branches and the terms of its overdraft facility.
Banks are keen to attract new current account holders because, once they are customers, they can then sell them other products. With TSB you will get access to its Monthly Saver Account. This is a good deal as you earn a fixed 6 pc for a year on savings of between £25 and £250 a month.
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