National Savings and Investments (NS&I), which issues Premium Bonds, has slashed the interest rates it pays.
The dramatic cut will hit the savings of 25 million people who have invested with NS&I, which allows people to lend money to the government.
It will also reduce the chances of those who own Premium Bonds from winning any of the monthly prizes on offer, which include a £1m jackpot.
Savers will soon have a one-in-34,500 chance, against one-in-24,500 now.
It is also slashing the number of £100,000 prizes from seven to four and £50,000 prizes from 14 to nine.
Funding the crisis
As government spending increased to fund the response to the coronavirus crisis, so did the amount that NS&I was asked to raise for the government.
In July, its target was increased from £6bn to £35bn. In the first three months of its financial year to June, NS&I raised £14.5bn and it said demand had been “similarly high” in the second quarter, which finishes at the end of this month.
The savings scheme said some of its interest rates were above those offered by High Street banks, which caused a surge in demand.
“Reducing interest rates is always a difficult decision,” said NS&I chief executive, Ian Ackerley.
“Given successive reductions in the Bank of England base rate in March, and subsequent reductions in interest rates by other providers, several of our products have become ‘best buy’ and we have experienced extremely high demand as a consequence,” he said.
“It is important that we strike a balance between the interests of savers, taxpayers and the broader financial services sector; and it is time for NS&I to return to a more normal competitive position for our products.”
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The changes to Premium Bonds will come in for the December prize draw.
Meanwhile, interest rates on other products will be lower from 24 November – and they include some steep drops.
NS&I’s direct saver will offer just 0.15% interest, down from 1% before. Meanwhile, the rate on its income bonds will fall to 0.01%. It was previously 1.15%.
The rate on its investment account will also be 0.01% when the rates change, that’s down from 0.8%. And the direct ISA will offer 0.1%, compared with the 0.9% savers get at the moment.
Kids will do a bit better, getting 1.5% interest from the junior ISA, although that is still well below the 3.25% they can get now.