As £3.5bn pours into NS&I, this may NOT be time to follow the crowd - Sound health and lasting wealth (2024)

National Savings & Investments has finally boosted the interest it pays on its Isa account – but don’t be fooled, its rates are still trailing behind others. And while the state-backed bank ramped up its prize rate on Premium Bonds at the start of the year, it has made no further improvements since.

Premium Bonds are easily the most popular savings deal in Britain, but savers can find better rates elsewhere, say experts.

And do not hold out for big rate rises any time soon, as NS&I is currently under no pressure to improve its deals, says James Blower, founder of savings website Savings Guru.

Savers poured £3.5 billion into NS&I accounts in March alone – nearly double the amount paid in in February – after NS&I made three big changes that gave savers more reason to invest.

The first change this year was an unprecedented boost to the number of £100,000 and £50,000 prizes on offer. These are the largest prizes paid out after the two £1 million jackpot wins available each month. As always, you can invest from as little as £25 up to £50,000 and there is no danger of losing your stake – it’s fully protected by a Treasury-backed guarantee.

The second big change has been a boost in the prize fund rate for Premium Bond savers, improving the odds of each £1 winning a prize every month.

Third, in February, NS&I launched a new issue of its Green Savings Bond paying a fixed rate of 4.2 per cent over a three-year term while relaunching its Guaranteed Growth Bond for new customers – paying 4 per cent on its one-year fixed-rate deal. These boosts proved enough to lure in savers, with £5.5 billion flooding into NS&I accounts in February and March combined.

By contrast, households withdrew £4.8 billion from banks and building societies in March, as they redirected money to NS&I and fixed-rate deals.

It is also thought that recent global bank failures coupled with the limited protection afforded by the Financial Services compensation Scheme (FSCS) might have played some part.

The FSCS safeguards those who deposit cash with a bank or building society, but only up to £85,000 per person per institution.

Blower says this uncapped protection offered by NS&I is enough to guarantee its products will always prove popular.

He says: ‘Savers are protected on 100 per cent of their savings with NS&I. And that’s particularly attractive for high value savers who aren’t covered by the FSCS or have too much to spread around several banks.’

So, NS&I can attract savers’ cash despite lagging far behind in the best-buy tables.

On Tuesday, it nudged the rate on its easy-access Direct Isa from 2.15 to 2.4 per cent.

Yet this is clearly some way off the pace for best-buy savings accounts. Tax-free savers can get 3.51 per cent elsewhere.

Anna Bowes, of rate scrutineer Savings Champion, says last week’s rise was ‘underwhelming’.

Easy-access savings rates across the wider market have risen much faster. The best rates all pay upwards of 3.5 per cent now, with the market-leading deal currently paying 3.71 per cent.

And savers can get up to 5 per cent if they lock into a one-year fixed rate.

NS&I has also come under fire for poor customer service.

Frustrated customers have been voicing their anger and last month an investigation by The Mail on Sunday and our sister publication, Money Mail, pinpointed a host of problems at NS&I.

These include keeping customers on hold and then cutting them off, locking customers out of accounts for weeks and rejecting applications for Premium Bonds without explanation. The Government has tasked NS&I with attracting £7.5 billion from savers in the next 12 months, albeit allowing it a range of £4.5 billion to £10.5 billion.

In April alone, the first month of the new financial year, NS&I attracted £700 million on Premium Bonds, a pace at which it would exceed its target if maintained, Blower noted.

But he added: ‘However, we suspect that it is still seeing a lot of money being withdrawn from its other savings products, due to poor rates and customer service issues.’

With easy-access rates expected to continue rising and fixed rates offering the highest returns since 2009, NS&I may yet be forced to up rates again, he says, adding: ‘The Premium Bonds prize pool rate is some way off the best-buy, easy-access savings rates, and, when you consider savers with £50,000 invested in Premium Bonds, who with average luck will get prizes equivalent to 3.3 per cent in interest, they are a way off for most.

‘So NS&I could increase rates again in the coming months to keep up – but don’t hold your breath.

‘In normal circ*mstances, NS&I would see inflows in times of concern, but we feel it has made such a mess of its customer service since the pandemic that it will be hard for it to regain savers’ trust.’