Savers in the current low-interest-rate environment face a fresh blow after National Savings & Investments (NS&I) announced a cut to their rates.
NS&I customers, including Premium Bond holders, will receive lower returns from 1st May 2020 onwards.
According to the Treasury backed savings provider, rates are to be cut after the organisation failed to meet its income target.
For Premium Bond holders, the chances of winning a single prize will fall from 24,500/1 to 26,000/1.
The odds on Premium Bonds will fall as the effective interest rate used to calculate the prize pot is cut from 1.4% to 1.3%.
It’s a big deal for the approximately 22 million people who, between them, own 70 billion Premium Bonds.
Despite a lengthening of odds and lower overall prize fund, Premium Bond holders will still have a chance to win one of two £1 million top prizes each month. Other Premium Bond prize categories - which range from £25 to £100,000 - will have fewer winners from 1st May onwards.
The cut in prizes and the effective interest rate means Premium Bonds will mean an estimated 13,448 £100 prizes will be won in May, down from 27,221 prizes this month.
The interest rate cuts at NS&I arise because savers are less willing to place money with the state-backed organisation. They also need to remain competitive in line with other savings providers.
Ian Ackerley, NS&I chief executive, said:
“Reducing interest rates is always a difficult decision. We need to ensure our interest rates are set at an appropriate position against those of our competitors.
“These changes reflect NS&I’s requirement to strike a balance between the needs of our savers with taxpayers and the stability of the broader financial services sector. We believe our new rates offer our customers a fair return and the assurance of the 100 per cent HM Treasury guarantee on all their holdings with NS&I.”
Other NS&I products facing an interest rate cut include the Direct Saver account. Interest on this account will fall from 1% to 0.7%.
Savers with NS&I Income Bonds will see their interest rate cut from 1.16% to 0.7%, and savers in the Investment Account will experience a rate cut from 0.8% to 0.6%.
Interest rates for new Guaranteed Growth Bonds, Income Bonds and Fixed Rate Savings Certificates also face cuts, with interest rates falling by as much as 0.4% depending on the selected term.