Whilst the interest rate cuts is generally pitched as positive news for the economy, it's worth remembering its not so great for savers in cash or savings bonds.
The government-backed NS&I will cut rates on premium bonds from 20th December. The rates on NS&I’s Direct Saver account will reduce from 3.75% to 3.5% AER, and the Income Bonds will see their interest rate cut from 3.75% to 3.49% AER. Additionally, the ‘expected prize fund’ on Premium Bonds will reduce to 4.15% in December and then to 4% in January next year.
Premium bonds are often seen as a bit of fun compared to other savings vehicles as they pay out from a prize fund instead of just a guaranteed rate. The prize money is tax free. However the reduction in effective rates and payouts means that many NS&I accounts are now significantly below the top rates in the market. Savers are paying a decent premium for the security and brand name of NS&I.
Many people over the years have used NS&I bonds as a gift to children or grandchildren, or have bought them and forgotten about them. As a result they might not have been reviewed for some time. A Freedom of Information request obtained by AJ Bell in November revealed that two-thirds of Premium Bond holders, or just under 14.4 million people, have never won a prize.
If you hold a premium bond it might be time to consider if it is working hard enough for you now with these rate cuts imminent.