Premium bonds and negative interest rates

macman

There are are plenty of safe places to put your savings that will pay a better rate of return than NS&I. Any FSCS-protected savings account will cover you up to £85K-more than the maximum £50K you can have in PB's. But to get the better rates you won't have instant access, you'll need to pick a one or two year fix.

eskbanker

MrMoore said:

Hope you don't miss the notification of the changes of Premium Bonds if it happens

My point was that a relatively minor change in prize rates was heavily publicised well in advance.  'Going negative' would actually be a complete change to the entire basis of the product, which is oriented around payment of prizes and has no Ts & Cs allowing capital deductions, so (at the risk of dignifying this notion) if there ever was any move in that direction, they'd be obliged to go through a much more formal process than publishing new rates.

MrMoore said:

You could always gamble your negative interest or prize of negative £1M on the lottery as they are not based on interest rates for the prize fund.

I don't know what you mean but hope it made sense to you.  Are you perhaps under the impression that PB prize rates are correlated with bank base rates (or indeed any other rates)?

MrMoore said:

The other thing is that property prices will go through the roof in my opinion as a reult of negative interest rates rather than fall due to jobless as predicated previously for the 4th quaster of this year. Very fanciiful I agree if that is the right word for a disaster!

You do know what 'fanciful' means, right?

MrMoore said:

So you think Premuim Bonds are a safe haven then, well lets hope so as there is nowhere else to put your savings apart from property my learned friend.

I don't know what the future holds for PBs, but if things ever got to the stage where it was felt inappropriate to continue to pay prizes, the scheme would effectively need to be unwound and replaced with something else, under new terms.  As above, in the extremely unlikely case that this happened, bondholders would have ample time to take action, but there's no particular reason to believe that property would be an obvious alternative, never mind the only one....

eskbanker

macman said:

There are are plenty of safe places to put your savings that will pay a better rate of return than NS&I. Any FSCS-protected savings account will cover you up to £85K-more than the maximum £50K you can have in PB's. But to get the better rates you won't have instant access, you'll need to pick a one or two year fix.

Which savings accounts (within those parameters of high balances for no more than two years) pay better than the expected 'average luck' 0.9% PB return, even ignoring the tax-free status of PB winnings?

strawb_shortcake

MrMoore said:

Hope you don't miss the notification of the changes of Premium Bonds if it happens

 

Given the publicity that was given with a drop from 1.4 to 1% I'd imagine you'd have to be dead or in a coma to miss the news that two (un)lucky Premium bond holders would have to find £1m if their numbers came up

polymaff

Not necessarily a post to be scorned.

We had negative CPI (2015) and negative RPI (2009).  What happened then?

When I asked NS&I in 2007 about this issue with regard to Inflation-linked saving certificates,  NS&I replied that they would not reduce the value of ILSCs in such circumstances.

Don't look to NS&I to be consistent - except in the incompetence issue I wrote a new thread about an hour ago - but that was the situation then re: negative rates.

sevenhills

moneysavinghero said:

Then you would just withdraw your money and put it elsewhere. Not that it is going to happen anyway

But interest rates are already very low, so we are talking about rates moving 0.5-1%

eskbanker

polymaff said:

Not necessarily a post to be scorned.

We had negative CPI (2015) and negative RPI (2009).  What happened then?

When I asked NS&I in 2007 about this issue with regard to Inflation-linked saving certificates,  NS&I replied that they would not reduce the value of ILSCs in such circumstances.

Don't look to NS&I to be consistent - except in the incompetence issue I wrote a new thread about an hour ago - but that was the situation then re: negative rates.

But ILSCs are intrinsically pegged to an index, which can and does rise and fall, even though they offer that protection against capital loss, which is in the product terms now even if it wasn't back then.

However, negative interest as a concept is somewhat more problematic - it's one thing for the Bank of England to set a negative base rate but it's an entirely different story for that to be translated into something equivalent for savings accounts and (especially) premium bonds.  Even putting aside guarantees on capital protection, it could perhaps be argued from a purist mathematical perspective that adding interest to a savings account could lower the balance if the number being added was negative, but this contrived logic simply doesn't fit the PB model (enshrined in the Ts & Cs) of a prize draw, as 'negative prizes' would be a meaningless construct.

Within those Ts & Cs (and associated legislation), NS&I have the right to vary the prize rate and the breakdown of those prizes, but not to cancel the prize draw entirely and to introduce some form of deduction mechanism instead, so my point is that in the apocalyptic scenario where drastic measures like this were even being considered, the entire scheme would effectively have to be withdrawn and replaced with something else, so the notion that 'negative interest' can be applied casually or surreptitiously to PBs just doesn't wash....

MX5huggy

Looking forward to negative interest rates, Barclaycard will be paying me a fortune.......

polymaff

eskbanker said:

polymaff said:

Not necessarily a post to be scorned.

We had negative CPI (2015) and negative RPI (2009).  What happened then?

When I asked NS&I in 2007 about this issue with regard to Inflation-linked saving certificates,  NS&I replied that they would not reduce the value of ILSCs in such circumstances.

Don't look to NS&I to be consistent - except in the incompetence issue I wrote a new thread about an hour ago - but that was the situation then re: negative rates.

But ILSCs are intrinsically pegged to an index, which can and does rise and fall, even though they offer that protection against capital loss, which is in the product terms now even if it wasn't back then.

However, negative interest as a concept is somewhat more problematic - it's one thing for the Bank of England to set a negative base rate but it's an entirely different story for that to be translated into something equivalent for savings accounts and (especially) premium bonds.  Even putting aside guarantees on capital protection, it could perhaps be argued from a purist mathematical perspective that adding interest to a savings account could lower the balance if the number being added was negative, but this contrived logic simply doesn't fit the PB model (enshrined in the Ts & Cs) of a prize draw, as 'negative prizes' would be a meaningless construct.

Within those Ts & Cs (and associated legislation), NS&I have the right to vary the prize rate and the breakdown of those prizes, but not to cancel the prize draw entirely and to introduce some form of deduction mechanism instead, so my point is that in the apocalyptic scenario where drastic measures like this were even being considered, the entire scheme would effectively have to be withdrawn and replaced with something else, so the notion that 'negative interest' can be applied casually or surreptitiously to PBs just doesn't wash....

Didn't request a polemic, just that someone better informed than I remember what happened previously.

Agree, by the way - except for your final "surely they couldn't act so foolishly" sentiment. ...

MrMoore

MX5huggy said:

Looking forward to negative interest rates, Barclaycard will be paying me a fortune.......

If I just on my £18,000 a year pensions I would be worse off than a retired benefits person who has never worked according to what I found on Gov.UK, online. I'm happy with what I get though. It's just that some benefits include a check on what I have in the bank although I only get about 0.3% in interest off my savings compared to about 6% before whatever caused the interest rates to go so low. Japan, Sweden and Denmark are on a negative bank base rate and although borrowing is still at least 0%.

Basically the problem comes with the intermeadiary. I doubt if bank is never going to work at a loss and would rely on customer borrowings to keep them afloat with the bank of England paying them to borrow but you would probably never win and you would get about nothing from Premuim bonds either. There is nothing to stop them introducing a negativer prize. Unless you are on a fixed rate at base rate sorry your card will still be at a rip off rate way above base rates just as they have always been. If you need a "normal" loan to start a business there is a no better time to start up providing it cannot affected by a 3rd wave.

If you have large debt on your credit card then a very low fixed rate loan to pay it off could be a good idea, expecially if you waite untill the base rate does go negative. If I had any debts on a credit card I would edge my bets and go for a fixed rate loan low. At least you would be paying out a lot less than a rip off credit card rate.