NS&I exceeded its target for net financing to the Government in 2023/24, as savers did not withdraw their cash as quickly as expected.
A finance expert has suggested that the provider might now consider more “heavy-handed” rate cuts in the coming months.
In its annual report, NS&I revealed it provided £11.3 billion of net financing to the Government in 2023/24, surpassing the year’s target. The goal was set at £7.5 billion with a leeway of plus or minus £3 billion, creating a target range of £4.5 billion to £10.5 billion.
NS&I stated that it was on track to meet its net financing target in December 2023, but repayments to customers in January and February 2024 were not as high as expected. Dax Harkins, Chief Executive, said in the report that NS&I had strived to “do the right thing” by promptly passing on Bank of England base rate increases to customers, while also ensuring it met its operating framework to balance the interests of savers, taxpayers, and broader market stability.
He noted that predicting inflows and outflows had become more challenging in the competitive savings market, stating: “Competition for savers’ deposits was fierce.”
He continued: “By the summer, we were significantly behind our net financing target despite successive rate increases to our variable and fixed products.
“In response, we launched new one-year issues of our popular Guaranteed Growth Bonds and Guaranteed Income Bonds.”
“This enabled us to get back on track to meet our funding target and meant we had certainty on how long these funds would remain with us so we and competitors could plan accordingly.”
“I’m pleased that more than 220,000 savers were able to invest over £10 billion in these products.”
“These funds helped ensure that, by December, we were on course to meet our net financing target.”
“However, repayments to customers in January and February did not materialise to the levels expected based on the experience over the previous months, and a Premium Bonds rate decrease did not contribute to a lowering of our net financing total as much as we had anticipated.”
“Consequently, our year-end position was £11.3 billion, £0.8 billion outside our target range.”
When customers invest in NS&I products, they are lending to the Government. In return, the Government pays interest or prizes for Premium Bonds.
The Treasury-backed body offers a range of savings and investments to more than 24 million customers. Its products can be particularly attractive to savers as they offer 100 percent capital security.
NS&I also missed a service delivery measure for customer satisfaction.
Its chairman, Ed Anderson, said in the report: “We were disappointed to miss our customer satisfaction target for the year.”
Despite missing two of its six service delivery measures in 2023/24, NS&I successfully met the remaining four these included the service delivery measures for Government payment services delivery performance, digital-first, efficient administration of funds, and employee engagement.
Sarah Coles, head of personal finance at Hargreaves Lansdown, commented: “In the first three months of 2024, NS&I was actively trying to send savers packing.”
She continued: “It cut the Premium Bond prize rate in the hope it would inspire an exodus, but it didn’t persuade enough people to leave, so it overshot its fundraising target. This doesn’t bode well for savers with Premium Bonds.”
Coles further explained: “It was a year of two halves, with NS&I frantically boosting savings rates and taking the Premium Bond prize rate to a 24-year high of 4.65 percent, to try to boost savings, as it undershot its target.”
“In August, it decided to tackle the shortfall with the launch of highly competitive one-year bonds, which attracted a blockbusting £10 billion.”
She added: “It was comfortable with the mid-year overshoot, because it thought, as products matured in early 2024, people would naturally withdraw their cash. However, they didn’t.”
Ms Coles warned: “The concern for savers is that it might be tempted to be more heavy-handed with cuts in the coming months.”
She noted: “As the Bank of England eyes up rate cuts, savings rates have proved remarkably robust.”
“However, we’re expecting them to fall as cuts kick in.”
