Premium Bonds a loser again

NATIONAL Savings & Investments has failed to pass on the full benefit of the base rate rise to savers and holders of Premium Bonds for the third time in a row.

The bank said it would increase its prize fund rate by 0.2% to 3%. The higher the prize fund rate, the more chances bond holders have of winning. The latest move is in response to a 0.25 percentage point rise in the UK base rate earlier this month.

The base rate has risen from 3.5% to 4.5% since November. Over the same period, Premium Bond returns have risen only from 2.15% to 3%. NS&I points out that it spared savers two rate cuts when the UK base rate was falling.

Savers should also remember that due to Government rules, changes to Premium Bond rates are delayed for three months, until October.

'We don't automatically pass on the full increase to customers,' said a spokeswoman. 'There are a number of factors which are taken into consideration, for example the term of the investment and the rates offered by competitors in the market.'

'However, we are committed to passing on increases to savers and investors whenever we can and when market conditions allow,' she added.

Last month, the bank said that the odds of winning a prize will improve in September from 27,500-1 to 24,000-1. The number of monthly prizes will rise above one million for the first time.

Savers can put a maximum £30,000 into Premium Bonds, which pay prizes tax-free. The limit was raised from £20,000 in 2003 sparking a surge of money into the bonds. Those investing the maximum can expect to win 15 payouts a year, with £1m the top prize.

Rates on other products have also increased the tax-free Fixed and Index linked Savings Certificates will also increase by between 0.15% and 0.25% with immediate effect for new customers.

Interest on the two-year fixed interest savings certificate has risen to 3.50%, while the five-year certificate will now pay 3.65%. The rate on Children‘s Bonus Bonds has gone up by 0.20% to 4.70%. The mini cash Isa now pays interest of 4.20%.

Customers in the Easy Access Savings Account will see rates rise by 0.25%, to between 2% to 4.55%, depending on the balance in the account. It was launched in January of this year to replace the Ordinary Account, which closes on 31 July.