One of the minor surprises of this year’s Budget was the Chancellor’s rediscovery of National Savings & Investments (NS&I) as a way of raising money. In past years NS&I had been largely neglected, not least because it was cheaper to raise the billions the government needed by selling gilts to institutional investors.
Cynics might remark that the Chancellor’s new interest in individual savers has more to do with the approaching General Election than financing the Treasury’s black hole, but anything which brings a little more competition into the deposit market is to be welcomed. June marks the start of three initiatives focused on Premium Bonds, with the investment limit being increased from £30,000 to £40,000. In August the number of £1 million monthly draws will double – to two – and in the next tax year the investment limit will be upped again, to £50,000.
Before you rush off to top up your holdings, it is worth noting a few points which probably will not be included in NS&I’s promotion of the increased limit:
- The underlying prize rate is 1.3%. That is tax free, so it is quite attractive if you pay tax at more than basic rate and have average luck with your holding. Nevertheless, 1.3% is still below the current rate of inflation, whether you choose CPI or RPI.
- The odds of a single bond winning any prize in the monthly draw are 1 in 26,000.
- The chances of a single bond winning the £1 million jackpot are currently about 1 in 47,650,000,000, although this should roughly halve in August.
- Of the 1,832,557 prizes selected by ERNIE in May 2014, 1,804,263 (98.46%) were £25.
With an ISA cash limit more than doubling to £15,000 a year from 1 July, it will be interesting to see how much NS&I can attract in new bond holdings.