Western Morning News (Saturday)
Still waiting for a big win with Ernie
As interest rates rise, where’s the boost for premium bonds, asks Ian L Handford
IT was an interesting statement when the Chief Executive Officer of the NS&I bank services Ian Ackerley announced that the interest rate on both Direct Saver and Interest Bonds would increase by 15 basic points, with the interest paid on both accounts changing from 0.35% to 0.50% gross/AER.
The announcement followed the Bank of England’s recent interest rate rise. Mr Ackerley said the new interest rates would “ensure our products are priced in line with the broader savings sector” adding: “The increase will help us to meet our annual financing target for 2021/2022 of £6billion, in a range of £3billion to £9billion”.
But sadly, he failed make any mention of his main product – Premium Bonds.
The NS&I is one of the UK’s largest saving organisations and controls the Premium Bond scheme, a product backed by HM Treasury ensuring it is a guaranteed investment for everyone. However, Premium Bonds holders achieved no benefit from the Bank of England’s third interest rate increase which seems odd bearing in mind many of its investors – or savers – have remained loyal since the concept started in 1956.
Premium Bonds entered our lives after Harold Macmillan included the concept in the Budget on April 17 of that year. It meant anyone could buy bonds costing £1 each, up to a maximum holding of £500. Investors who purchased bonds were then part of what was amusingly called a “saving with a thrill” scheme.
Each month anyone who held
Premium Bonds had the chance of winning a maximum of £1,000 for each £1 invested. The scheme was an immediate success and on its first day five million £1 bonds were purchased. Today some twenty three million individuals have now invested £33 billion in Premium Bonds. Each month two £1 millionaires are created through the jackpot wins.
Historically, it was when the Post Office Savings Bank was transferred to a new NS&I Bank that their new product, the fully protected Premium Bond Scheme started, using the comically named “Ernie” (Electronic Random Number Indicator Equipment) which randomly chose the winning numbers each and every month. The equipment was based on the code-breaker machine invented at Bletchley Park during World War II. Since 1956 it has continued without a break through four separate upgrades using “thermal noise technology” to generate the numbers. Now a fifth upgrade is planned using quantum technology – an innovation of light source or as the official literature confirms “the new technology allows ERNIE to produce enough random numbers for a monthly prize draw in just twelve minutes – 42.5 times faster than its thermal predecessor”.
Throughout the upgrades investors remained loyal to the Premium Bond concept, as their money is secure and protected by Government.
Any winnings come free of income or capital gains tax and are also not subject to probate in the event of death. Ernie has created a hundred and sixty eight millionaires since 1994 when the £1million prize was introduced. Today over £9 billion has been given out in wins, to a lucky 142 million individuals since 1956.
Inigtially just a single £1 bond could be purchased, although over the years the minimum allowed has been increased to £100. The odds of the single bond winning today has increased to 24,000 to one. The NS&I believe that any individual holding around £30k of bonds should – with luck – win at least fifteen times a year. However, the odds on winning have reduced. The emphasis of course is on “luck” and though two new millionaires are made each month, the odds against this are said to be 159,175 to one. As an investor for over sixty years my bonds have never yielded any prize exceeding £25 – although my investment remains intact.
Knowing that literally millions of their investors have remained loyal it does seem odd that the NS&I Directors chose to raise interest rates on Direct Savings and Income Bond, while ignoring any similar uplift to the Premium Bond scheme even though “investors” are listed as part of their product list. With most high street banks having increased their saving rates – twenty three million current Premium Bond holders are losing out –until they win, of course.
Ian L Handford is a former national chairman of the Federation of Small Businesses
Monday: Judi Spiers has been freeing her mimosas into the spring sunshine...