National Savings & Investments (NS&I) is falling well short of its government-set savings target, with premium bond sales sluggish despite a recent prize rate rise, according to savings expert Sylvia Morris.
NS&I has been tasked by the Government to bring in an extra £15billion, plus or minus £4billion, in the year from April 1. Premium bonds make up more than half of the £250billion NS&I holds, making them its most important product.
Savers put in an extra £29.5million ahead of the August draw compared with the previous month, even though NS&I raised the prize fund from 3.3pc to 3.8pc from the July draw, Morris said.
The previous two months were also weak. In April, savers put in an extra £163million, far below the 12-month average of £423million a month. In May, the amount going in fell to just £20million, according to Morris.
In total, NS&I has brought in just £153million in premium bonds in the first three months of this financial year, compared with £1.4billion in the same period last year. NS&I is now facing a shortfall of £11.8billion, and to meet its target it must pull in an average of £3.93billion every three months across all of its products, Morris said.
NS&I raises fixed-rate bonds
On Friday, NS&I raised rates on its fixed-rate bonds. The rate on its one-year guaranteed growth bond is now 4.72pc, near the top of the best buy tables, with Oaknorth Bank offering the top rate of 4.86pc. NS&I pays far higher rates than the largest banks and the top five building societies, according to Morris.
On the one-year NS&I guaranteed income bond, which pays interest monthly rather than at the end of the term, the new rate is 4.63pc. Its guaranteed growth bond range includes 4.7pc for two years, 4.68pc for three years and 4.7pc for five years.
Watch out for tax on longer bonds
Morris warned that savers choosing a longer-term bond should watch their tax bill, since these bonds pay out at the end of the term and the interest earned counts entirely towards that year's personal savings allowance, rather than being spread across the years the bond was held. The personal savings allowance is £1,000 for basic rate taxpayers and £500 for higher rate taxpayers.
