Government breaks silence over NS&I Premium Bonds 'funds' and reassures holders

The government has broken its silence over how funds from Premium Bonds are used. National Savings and Investments, or NS&I, is backed by the Treasury and has winning Premium Bonds prizes each and every month, with Brits nationwide investing.

In Parliament this week, Labour lord and former justice minister, Michael Wills, asked the government to clarify how funds are used. Wills said: "What is their estimate for each of the past three years of their returns from retaining the proceeds of cashed-in Premium Bonds for up to six days before they are transferred to the holder’s bank account?"

Conservative peer, Baroness Charlotte Vere, said in response that NS&I provides "cost effective finance" for Government coffers "from the retail savings market". She explained: "It does this through offering savings products to consumers, including Premium Bonds.

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"Funds raised by NS&I from these products, including Premium Bonds, flow to the National Loans Fund (NLF). The NLF is the Government’s main borrowing and lending account, and to this end, it undertakes borrowing (primarily by issuing gilts via the Debt Management Office) and uses proceeds and other central Government surplus balances, including funds from NS&I’s Premium Bonds, to manage its cash needs day-to-day."

She went on: "The Exchequer’s cash needs are managed on an aggregate basis, meaning funds raised from Premium Bonds are not held in a separate account and do not receive a separate rate of return (which in any case is determined by the market as the government is ultimately a price taker).

"Therefore, there is not a single rate of return on NS&I proceeds and it would not be possible to provide an estimate of returns from retaining the proceeds of Premium Bonds. When a customer divests their holdings of Premium Bonds, these repayments are also funded via the NLF’s activities and are typically processed within three working days.

"However, in exceptional circumstances, such as Bank Holidays, this may take longer. This process allows HM Treasury to manage Exchequer cashflows in a cost effective manner."