Premium Bonds rate to reach 15-year high

Boost for more than 22m savers as National Savings & Investments to lift prize rate to 3.15pc next month

Savers who invest in Premium Bonds will see returns climb to their highest in almost 15 years as fears mount over the UK’S spiralling debt interest bill. National Savings & Investments (NS&I) will increase the Premium Bond prize rate next month to 3.15per cent from 3 per cent in a boost for more than 22 million savers. The savings bank is backed by the Treasury, so when customers invest in its products they are effectively lending to the Government.

SAVERS who invest in Premium Bonds will see returns climb to their highest in almost 15 years as fears mount over the UK’S spiralling debt interest bill.

National Savings & Investments (NS&I) will increase the Premium Bond prize rate to 3.15pc in February from 3pc in a boost for more than 22m savers.

The savings bank is backed by the Treasury, so when customers invest in its products they are effectively lending to the Government.

The increase will take the prize rate to its highest since May 2008. Britain’s best loved savings account will also become a best buy, paying the highest rate of any “easy access” account.

Economists said the move by NS&I suggested the Government was looking to tap households for cheap cash as its debt interest bill soars.

Official data yesterday showed public borrowing rose to £27.4bn last month, its highest December level since records began in 1993.

The Office for National Statistics said the increase in monthly borrowing was driven by around £7bn in extra support for households and businesses to pay energy bills, while debt interest payments climbed to a December record of £17.3bn as inflation hit its peak.

The UK’S debt interest bill is forecast to hit £116bn this financial year, with a quarter of the country’s £2 trillion debt pile linked to the RPI measure of inflation, which stood at 14.2pc in October.

Samuel Tombs, chief economist at Pantheon Macroeconomics, said the move by NS&I suggested it was turning to taxpayers as a source of cheap cash.

The Government usually borrows money by auctioning debt to investors. But higher inflation and interest rates have pushed up borrowing costs sharply compared with a year ago. Yields on benchmark 10-year gilts currently stand at 3.35pc, while borrowing costs on two-year debt are around 3.4pc.

Mr Tombs said: “It’s cheaper for the Government to borrow from households through Premium Bonds than it is from the gilt market.

“The savings market has also become much more competitive over the last few months as the Bank of England has been raising interest rates, so to sustain deposits or attract new ones NS&I probably feels the need to raise returns.”

Households had just over £211bn stashed in NS&I products at the end of last year, according to Bank of England data. Around half that amount is held in Premium Bonds.

Mr Tombs said higher debt interest payments also highlighted the need for the Government to have a “diversified pool of finance”.

He added: “Relying on the bond market and index-linked gilts means you get a big jump in interest payments if inflation soars.

“If they’d issued more Premium Bonds and provided the highest savings rate on those accounts in the last few years, and relied less on index-linked gilts, then perhaps we wouldn’t be seeing such high borrowing figures at the moment.”

The odds of winning will stay the same, at 24,000 to one, but savers will have more opportunities each month to win prizes worth £50 to £100,000.

Official figures show the UK’S debt share is now almost equal to the annual size of the economy, or 99.5pc of gross domestic product. This is the highest share since the 1960s.

While tax receipts have increased amid bigger pay rises and higher shop prices, the Office for Budget Responsibility, the fiscal watchdog, said the Government’s windfall levy on oil and gas companies raised £600m less than expected amid warnings that the growing tax burden on businesses is hampering investment in Britain.

The cash haul from the Energy Profits Levy was 24.5pc less than forecasts prepared in November.

Meanwhile, separate survey data showed British private-sector activity fell at its fastest rate in two years in January, as businesses blamed higher borrowing costs and increased consumer caution for the slowdown.

The S&P Global flash PMI fell to 47.8 in January. This is down from 49 in December and well below the 50 level that divides growth from contraction.