Page last updated at 09:02 GMT, Wednesday, 16 September 2009 10:02 UK

Higher payouts from Premium Bonds

Comedy characters Steptoe and Son ponder Albert's Premium Bond win
Premium bond holders are being offered a 50% increase in their prizes

Competition for savers' money is being stepped up with a 50% rise in the prize money on offer to Premium Bond holders.

National Savings & Investments (NS&I) will increase the prize fund payout rate from 1% to 1.5% in October, taking the total payout from £33.8m to £52.5m.

The prize rate is normally adjusted along with Bank of England's interest rate. In March NS&I cut its prize rate from 1.8% to 1%.

There are 23 million people with Premium Bonds, with £40bn invested.

"NS&I reviews the interest rates on all of its savings products each month to ensure it continues to balance the interests of its savers, the taxpayer and the stability of the wider financial services market," said Peter Cornish of National Savings.


NS&I exists to borrow money from the public to help fund government spending.

In the wake of the collapse of Northern Rock bank in the autumn of 2007, and the banking crisis a year ago, public money flooded into NS&I policies - including Premium Bonds and other accounts - as people looked for an absolutely safe home for their savings.

But after NS&I exceeded its fund raising target in the last financial year, 2008/09, the savings trend has reversed.

In the first three months of the 2009/10 year, NS&I saw a net outflow of money as people responded to higher rates available from banks and building societies, or preferred to use their money to spend or to pay off debts.

During that quarter there was a £4.5bn gross outflow of cash, which outstripped new inflows of £3.2bn.

The average rate on a bank or building society notice account has almost doubled in the past month to 0.43%, according to figures from the Bank of England.

And bank and building society fixed rate accounts, usually known as bonds, offer an average of 3.03%.

According to the financial information service Moneyfacts, the top bond rates on offer to savers range from 3.85% for one year with the Post Office, to 4.65% for three years from the Yorkshire Building Society, and 5.4% for five years from Aldermore.

In May, NS&I raised the interest rate on its own instant access savings account, known as an income bond, by 1%.

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