National Savings and Investments rate changes

National Savings and Investments (NS& I) is increasing the interest rates on a wide range of its variable and fixed rate savings offers by up to 0.25% per annum.

This increase follows the movement in the Bank of England base rate on 10 May 2007 which has a bearing on NS& I's variable rate products. The returns on many of NS& I's fixed rate products have risen because of increases in the gilt markets. Returns on these products are largely unaffected by any changes in the Bank of England base rate.

The revised interest rates on these fixed and variable rate products, including Income Bonds and Easy Access Savings Account, will come into effect on 23 May 2007, with the exception of the Direct ISA which was raised on 10 May 2007, and Premium Bonds which will take effect from 1 June 2007. Inflation-beating Savings interest rates, which were increased on 25 April 2007, remain unchanged.

As a result, new issues are available of products including tax-free Children's Bonus Bonds and Fixed Interest Savings Certificates.

Premium Bonds

The Premium Bond prize fund rate will increase from 3.60% p.a. to 3.80% p.a. free of UK Income Tax and Capital Gains Tax. The rate increases by 0.20% because of the need to take into account tax foregone. However the prize fund rate for the special Premium Bonds prize draw for June 2007 (for Bonds purchased on or before 31 April 2007) will now be 3.95%. This is because for this month only NS& I will pay out five jackpot prizes of L1 million each, and this special draw of course marks the 50th anniversary of the first ever Premium Bonds prize draw. From July 1 2007 the prize fund rate will be 3.80% (and this applies to Bond purchased on or before 31 May 2007).

The odds of winning a prize will stay at 24,000 to 1, meaning that someone with the maximum investment in Premium Bonds of L30,000 could, with average luck, win 15 tax-free prizes a year. The affect of the adjustments to the prize bands in the July 2007 draw (see table) means there will be more higher value prizes, for example the number of L50,000 prizes will rise from 33 in May 2007 to 58 in July 2007.