Home Money Why I fear premium bond rates could take a hit after the Budget: SYLVIA MORRIS explains

Why I fear premium bond rates could take a hit after the Budget: SYLVIA MORRIS explains

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Why I fear premium bond rates could take a hit after the Budget: SYLVIA MORRIS explains

When chancellor Rachel Reeves delivers her budget in two weeks, all eyes will be on the tax rise horrors she has in store.

But I will be on the lookout for another announcement, probably unnoticed, that will have huge implications for 24 million savers.

Hidden in the fine print could be how much HM Treasury wants National Savings and Investment (NS&I) to contribute this year.

NS&I sets its interest rates and bond premiums to achieve this sum – its “net funding target”.

Key objective: NS&I sets its interest rates and bond premiums so that it meets its ‘net funding target’, which is the amount HM Treasury wants it to raise during the year.

When NS&I hits a high target, it prices its products competitively to attract deposits. If it gets close to its target too soon, it cuts rates.

The target will not be revealed in the Chancellor’s speech; It is usually published after the Budget speech.

Sometimes this objective, which runs from April 1 to March 31, is even modified mid-year.

And it could happen with a new Government and Chancellor. But I wouldn’t be surprised if NS&I reduces award rates soon unless their target is raised in this budget.

The figure it needs to raise in this financial year ending March next year is £9 billion.

Check the best Isa cash rates in our savings tables

But it can spend £4bn on each side, so it is looking to generate £5bn to £13bn. Be careful with the objective. If it rises, rates could stay high for longer.

Figures from the Bank of England show it raised £3.3bn between April and August, meaning it could raise just under £8bn over the year if money flows at the same rate.

However, its popularity has been growing since the summer, meaning NS&I may cut rates to avoid overshooting its target unless it is given room to manoeuvre.

Savers have piled in as NS&I variable rates have not changed since the Bank of England’s base rate fell from 5.25 per cent to 5 per cent in August. Banks and building societies, however, have reduced rates.

The Premium Bond prize draw rate remains at 4.4 percent. That’s attractive, compared to easy-access regular accounts, where top rates range from 4.5 to 4.87 percent. Prizes are tax free.

The rate on its Direct Saver easy-access account remains attractive, rising from 3.65 percent to 4 percent in May. It is a good option for those who like to know that their money is backed by the Government.

It also increased its Income bonuses to 4 percent annually, attractive to pensioners since they pay 3.93 percent interest each month.

Its Direct Isa remains unchanged at 3 per cent – ​​a poor rate but better than what most big banks pay.

Sy.morris@dailymail.co.uk

Tesco bank and Barclays will join forces in a few days

Just after Nationwide took over Virgin Money comes the deal between Barclays and Tesco.

In February, Tesco Personal Finance announced it was selling its bank to Barclays. If the High Court approves the move tomorrow, Tesco Savings will transfer to Barclays on November 1.

The accounts will still be Tesco branded and will work in the same way, with one big difference; the protection permitted by the Financial Services Compensation Plan.

You currently have £85,000 cover with each bank. But next month you will have a £85,000 cover pool (£170,000 in joint accounts) split between Barclays and Tesco.

If your combined holding exceeds this amount, you can withdraw or transfer the excess to another bank or building society without penalty within the first three months.

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