Your chances of winning anything will shrink further after last week’s decision by National Savings & Investments (NS&I) to cut the Premium Bonds prize rate, as well as slicing rates on its other savings products.
This is yet another blow for beleaguered savers who have seen rates dwindle to near zero since the financial crisis.
Premium Bonds, launched in 1956, can still claim to be the nation’s favourite investment, but has the bond now been broken for good?
The Premium Bonds prize rate will be cut from today’s tax-free 1.25 per cent to just 1.15 per cent from May 1.
NS&I will also cut the rate on its market leading Direct Isa from 1 per cent to 0.75 per cent, with the same cut applying to its Income Bonds.
Its Direct Saver rate will fall from 0.8 per cent to 0.7 per cent.
Adrian Lowcock, investment director at financial advisers Architas, says that savers will actually be losing money in real terms, once rising inflation is taken into account: “Consumer price inflation is currently 1.6 per cent, but could climb above 2 per cent this month, squeezing savers on both sides.”
This is a particular blow for cautious savers who have chosen NS&I products as a government-backed safe haven.
Lowcock says Premium Bonds are the wrong investment for pensioners who need a regular monthly income to fund their everyday living expenses, as they may win nothing at all: “The average prize rate is a misleading figure as the returns are skewed towards those few savers who do win a big prize, such as the £1 million jackpot.”
However, even after the forthcoming cut, the prize rate of 1.15 per cent is roughly three times the return on the average easy access savings account, which currently pays a meagre 0.37 per cent, according to MoneyFacts.co.uk.
Anna Bowes, founder of savings rate tracking service SavingsChampion.co.uk, says: “Premium Bonds will remain popular, given low interest rates elsewhere.”
She says if you shop around you can get 1.10 per cent from the RCI Bank Freedom Account, which is run by Renault with your money protected under the French deposit protection scheme.
West Brom Building Society’s WeBSave Bonus Saver 2 pays 1.05 per cent, which includes a 0.35 per cent bonus that expires on May 31, 2018.
Leeds Building Society’s Limited Issue Online Access Account pays 1.05 per cent, but only until February 28, 2018.
You can get higher rates from current accounts, with Santander 123 paying 1.50 per cent on balances up to £20,000, Tesco Bank paying 3 per cent on up to £3,000, and Nationwide’s FlexDirect paying 5 per cent on up to £2,500, but only for 12 months.
Read the terms and conditions carefully, as you may have to pay in a regular monthly amount and set up direct debits to qualify.
Savers willing to take a bit more risk with their money may wish to seek a higher return elsewhere.
Darius McDermott, managing director at Chelsea Financial Services, suggests buying a corporate bond fund, which invests in bonds issued by companies to pay for their expansion: “Royal London Corporate Bond currently offers income of 3.7 per cent a year before charges, higher than cash, but also riskier.”
If you are willing to invest in stocks and shares, Threadneedle UK Equity Income invests in blue-chip stocks and yields 3.9 per cent before charges.
“If you want a wider spread of investments, Premier Multi-Asset Monthly Income yields 4.7 per cent,” he adds.
Another option is to wait for NS&I’s new three-year savings bond, announced by Chancellor Philip Hammond in his Autumn Statement.
Due to be launched in the spring, it will pay around 2.2 per cent. These days, that is the best savers can hope for.