NS&I Savings Rates Hit Peak, Expert Warns of Rate Cuts and Prize Fund Reduction

National Savings and Investments (NS&I) has hit its fundraising target for the year, surpassing expectations. The Treasury-backed bank has raised an impressive £9.8 billion from savers in the past six months, largely due to the popularity of its 6.2% one-year fixed-rate savings option launched in August.

However, this achievement has led experts to caution savers about potential rate cuts on NS&I accounts and a reduction in the Premium Bonds prize fund. Despite the hopes of some that NS&I would increase its fundraising target, the Government has frozen it at £7.5 billion for the current fiscal year.

With a £3 billion threshold on either side of the target, NS&I is not required to raise rates or increase the prize fund. Savers are now being advised to “shop around and nab the best rates before they fall further” by Laura Suter of AJ Bell.

The announcement is expected to affect the attractiveness of NS&I accounts in the coming months. The bank has already withdrawn its best buy Guaranteed Bonds and reduced the rates on its Green Savings Bond. Experts believe that other accounts could also face cuts in the near future.

The warning comes as Moneyfacts data reveals a decline in interest rates on fixed-rate bonds for the first time since 2021. This trend indicates that savers may have already experienced the peak of savings rates.

For those invested in Premium Bonds, the news isn’t any more promising. Despite several increases in the underlying prize fund over the past two years, the odds of winning a £1 million prize have slimmed. With the likelihood of an increase in the prize fund diminishing, savers are advised to make the most of the current rates before they potentially fall.

While some speculate that the Premium Bonds account, which accounts for approximately 56% of NS&I’s portfolio, could be vulnerable to a cut, others believe that immediate price adjustments are unlikely before the end of the financial year in March 2024.

In conclusion, savers are urged to stay vigilant and explore their options as the savings landscape continues to evolve. It’s crucial to remain informed and proactive in seeking the best rates and offers, especially in the face of potential cuts to NS&I accounts and the Premium Bonds prize fund.