Premium Bonds warning: Blow for savers as NS&I could be 'heavy-handed with cuts' in months ahead

Based on its annual reports, NS&I confirmed it delivered £11.3billion in net financing over the period which is higher than the proposed target for the year.

The state-owned savings bank's initial target was £7.5billion, plus or minus £3billion.

According to NS&I, it had been on track to reach its net financing target in December 2023.

However, repayments between January and March 2024 "did not materialise to the levels anticipated".

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Unlike traditional savings products, Premium Bonds do not have a regular interest rate attached to them.

When Britons invest in NS&I products, they are lending money to the Government with Premium Bonds customers being enrolled into a prize draw.

Savers are able to win cash prizes of up to £1million every months, as well as other sums including £100,000, £50,000 and £10,000.

As it stands, the prize fund rate for Premium Bonds sits at 4.4 per cent which is an estimate of the average return someone could earn on an investment.

However, there is no guarantee a NS&I customers will win anything due to the nature of the savings product's lottery.

Sarah Coles, the head of personal finance at Hargreaves Lansdown, highlighted that the financial institution has previously attempted to "send savers packing".

She explained: "It cut the Premium Bond prize rate in the hope it would inspire an exodus, but it didn’t persuade enough people to leave, so it overshot its fundraising target. This doesn’t bode well for savers with Premium Bonds.

"It was a year of two halves, with NS&I frantically boosting savings rates and taking the Premium Bond prize rate to a 24-year high of 4.65 per cent, to try to boost savings, as it undershot its target.

"In August, it decided to tackle the shortfall with the launch of highly competitive one-year bonds, which attracted a blockbusting £10billion.

"It was comfortable with the mid-year overshoot, because it thought, as products matured in early 2024, people would naturally withdraw their cash. However, they didn’t."

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According to Coles, NS&I may end up becoming "heavy-handed" with cuts later in the year in response to overshooting its target. However, Myron Jobson, a senior personal finance analyst at interactive investor, questioned whether this will be the case.

Jobson said: "The net financing target is higher for the current financial year at £9 billion. But with a £22 billion black hole in public finances to fill, the government might lean on the NS&I even more to raise enough money for the Treasury – but it would need to do so as cost-effectively as possible.

“This could translate to the NS&I not being heavy handed when it comes to cutting rates and remaining competitive during the interest rate cut cycle, or the Premium Bond prize rate not deviating much.

“More broadly, with a cut in the base rate a question of when, not if, the best savings rates are on borrowed time. Those who can afford to put money away for at least five years or more should consider investing for the potential of long-term, inflation-beating returns that far outstrip savings rates."

Dax Harkins, the bank's chief executive, said: "I’m pleased that more than 220,000 savers were able to invest over £10billion in these products. These funds helped ensure that, by December, we were on course to meet our net financing target.

"However, repayments to customers in January and February did not materialise to the levels expected based on the experience over the previous months, and a Premium Bonds rate decrease did not contribute to a lowering of our net financing total as much as we had anticipated."