Interest rates up 0.9% but premium bonds don't move

[Gan020]

I like my premium bonds but I'm struggling to justify holding them any longer.

Funny how the Treasury select committe always insist banks and building societies should move their rates in parallel with the base rate yet NSandI have done nothing.

As a 20% tax payer I can take my money out of NSandI and give it to Chase. I'll be paying tax but I'll still be better off.

I'll give NSandI a few days to raise their rates.

[Gan020]

We are now a week on since the BOE raised interest rates and NSandI haven't raised rates on any of their accounts as far as I can see.

Interest rates have risen around 1% on 2 and 3 year on bank/building society bonds since the start of the year whilst NSandI haven't moved at all.

I am going to start moving into 2 year bonds and reduce my instant access holdings with premium bonds

[DrFfybes]

Considering we have had 4 BOE rises since Dec then they are being a bit tardy.

BOE rates dropped to 0.1% in March 2020, yet NS&I didn't drop their rate until December, similarly the Aug 2016 drop in interest rates wasn't reflected until May 2017, although the Nov 17 BOE rise was reflected the following month by NS&I and the July 2018 one was ignored.

Looks like they tend to lag a month or several behind, but I expect they will rise quite soon.

Probably the day after you sell your holdings

Paul

[scrumpyjack]

The PB notional interest rate is 1% which is not uncompetitive with the instant access savings market. I can't see why they would raise it yet.

[Maroochydore]

I am going to start moving into 2 year bonds and reduce my instant access holdings with premium bonds

Whilst I agree with your sentiment it's quite clear that there are more interest rate rises on the way.

I'm looking at Kent Reliance 1 year fixed bond at 2.05%. Their 2 year bond is 2.35%. Not sure I'm going to tie in for an extra 0.3% when rates are rising.

Aldermore, with whom I'm my 1 year bond (1%) matures until early next month, have just increased their 1 year fixed bond from 1.85% to 2%. However their 2 year fixed bond is only 2.10%. Definitely not worth tying up with an extra year for 0.1%.

[yorkshirelad1]

It's a sobering thought when we get animated about the difference between 1% and 2% interest, which, in reality is double, so quite nice really, but double of not very much

And compare to inflation (currently https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/previousReleases around 9% RPI and 7% CPI with April figures due this week, 18 May), it is indeed sadly still not very much.

[Gan020]

I am going to start moving into 2 year bonds and reduce my instant access holdings with premium bonds

Whilst I agree with your sentiment it's quite clear that there are more interest rate rises on the way.

I'm looking at Kent Reliance 1 year fixed bond at 2.05%. Their 2 year bond is 2.35%. Not sure I'm going to tie in for an extra 0.3% when rates are rising.

Aldermore, with whom I'm my 1 year bond (1%) matures until early next month, have just increased their 1 year fixed bond from 1.85% to 2%. However their 2 year fixed bond is only 2.10%. Definitely not worth tying up with an extra year for 0.1%.

I took the Ikano 2 year bond at 2.65%. That was enough for me to tip some savings out of instant access into a bond.

It is my guess that the leading instant access rate from Chase isn't going to go up with interest rates. I'm assuming they have anticipated some of the rate rises and come to the market with a great leading rate to entice customers. I'm also assuming NSandI aren't going to raise rates quickly either as their customers are "sticky" and many will continue to hold their investments even with poor rates.

I cannot decide whether I have gone too early into this bond or should wait. I anticipate rates will get better but evey day I don't invest in longer term bonds I'm losing interest. I doubt I have hit the sweet spot but the 2.65% was enough to tickle my interest.