NS&I cuts interest rates and premium bond prizes: switch for better rates

Tom Wilson
31 March 2016

NS&I (National Savings & Investments) will cut the number of Premium Bond prizes it offers, while it will also slash the interest it pays on a range of savings accounts this summer, the Treasury-backed savings organisation has announced.

From 1 June, the Premium Bond prize pool will fall by about £4.7 million each month, and the odds of a single bond winning a prize will stretch to one in 30,000 from one in 26,000.

Interest rates will also be cut on five accounts: the Direct Isa, Direct Saver, Income Bonds, the Investment Account and Index Linked Savings Certificates, with most the changes taking place in June.

The announcement reflects the wider savings market where rates have plummeted in the last month, particularly on Isa accounts. See our Top cash Isas and best savings accounts best buys.

Jane Platt, NS&I’s chief executive says: “The majority of the new interest rates on offer are either at, or above, average market rates.

“We believe they present a fair offer to customers, who will also continue to benefit from our 100% HM Treasury guarantee on all holdings, as well as tax-free prizes for Premium Bonds.”

300,000 fewer Premium Bond Prizes each month

Under the reshuffle, the chances of winning the chances of winning the £1 million jackpot won’t change. However, the chances of a big win will fall dramatically as the number of prizes worth £10,000 or more will fall by more than half.

There will also be 400,000 fewer £25 prizes each month – the minimum amount up for grabs.

However, the chances of winning other prizes will increase. There will be 90,000 more prizes worth £50 or £100 each month, almost a 250% increase.

This means the effective pay out rate for Premium Bonds will fall from 1.35% to 1.25%, meaning NS&I will pay £125 per year for every £10,000 held in Premium Bonds.

But in reality the actual amount you win from premium bonds will probably be less (though it could be more), as the average pay out rate is pushed up by a very small number of bumper bonuses.

What’s happening with NS&I savings?

Below is what’s happening to NS&I’s savings accounts – all of the changes will affect new and existing customers.

From 6 June:

  • The Direct Isa will pay 1% interest, a fifth less than the current 1.25% rate.
  • Income Bonds, which have the option for interest to be paid monthly instead of annually, will pay 1%, down from 1.25%.
  • The Direct Saver will pay 0.8%, 0.3 percentage points less than the current 1.1% rate.
  • From 1 July:
  • The Investment Account (a postal-only easy-access account) will pay just 0.45%, down from 0.75%


Index-Linked Savings Certificates, which are a type of fixed-rate savings accounts guaranteed to beat inflation [that’s no longer on sale], will pay 0.01% more than the retail price index (RPI) for people with bonds maturing on 28 March 2016 or later.

This is down from 0.05% more than inflation. Interest paid from these is tax free meaning it won’t eat into your new personal savings allowance.

If you hold an Index-Linked Savings Certificate, you won’t be affected by the rate cut until your account matures, at which point you can chose to accept the new lower interest rate, or move your money elsewhere (see below for how to get the best rates).

Beat the rate cuts

NS&I will write to everyone who holds an affected variable rate savings account over the coming weeks to notify them of the changes.

However, if you hold one of these accounts it will pay to switch to a higher rate. You can get up to 1.65% on an Easy access, while you can earn up to 5% interest on your savings.

See our roundup of the top Isas and the best savings accounts each week, as well as the best current accounts, where interest rates beat those paid on savings accounts. 

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