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Roger Elwell - Yes Please

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Premium Bonds Rate Cut Not Matched For Student Loans

19 November 2008  |  2652 views  |  0

I heard on the radio this morning that the prize fund for premium bonds has dropped.  The reason given was because of the drop in interest rates, and so therefore the chances of winning money through this vehicle also had to drop.  Yet again, those with money saved have seen a reduction in their return (albeit this one is a gamble, rather than a deposit).

The prize fund has dropped from 2.85% to 1.8% of the fund.  This means that the chances of winning a prize have worsened from 24,000-1 to 36,000-1.  Together with the drop in rates on National Savings Bonds, HMG is doing just what a bank would, with regard to the rates it pays on money deposited with it.

It's interesting that it is also acting like a bank with regard to the money it lends.  It has missed entirely the irony of castigating the banks for not dropping lending rates quickly enough, and yet, just like a bank, it hasn't seen fit to communicate a drop in the student loan rate.  This was fixed back in July, since when Base Rate has dropped by 2%.  Of course, HMG doesn't call this interest, but instead a reflection if inflation.  However, it really is interest, since the funding of these loans must incur an interest cost to the Government and, in any case, it's quoted to students as an APR, which is interest in anyone's book.  That funding cost has reduced significantly in the last few months (following the Base Rate cuts) and yet they haven't seen fit to reduce this rate at all.

So, before they have a go at banks again, they need to get their own house in order and reduce the student loan rate, which will help students across the country.

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job title Consultant
location Colchester
member since 2008
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Consulting to the financial services industry with a specific expertise in the cards business - issuing and acquiring.

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