*On Friday just after this article was published, NS&I announced it would actually raise the rates on some of its variable products, a move in complete contrast to those forecast by industry commentators.

NS&I delivered £10bn of net financing to the Government in 2022/23 which bust its target of £6bn, plus or minus £3bn.

This means it overshot its funding target by £1bn, with the net financing figure measuring the change in total inflows and outflows. A positive figure means a positive contribution to Government financing.

NS&I noted that at the end of the financial year, savers ploughed money into its products as uncertainty hit the US banking sector. One of the big pulls for NS&I products is that they offer 100% capital security as they’re backed by the Treasury.

During the last financial year, NS&I increased the Premium Bonds prize fund rate five times, adding 1.6 million more prizes each month compared to the year before.

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It also relaunched Guaranteed Growth Bonds and Guaranteed Income Bonds and increased rates on other products, including its Direct Saver and Income Bonds.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said NS&I will pay out an extra £2m after accidentally paying 3,265 people with the guaranteed bonds too much cash.

“It had meant to raise the interest rate on 1 December last year, but brought it in on 26 October by mistake. It corrected this by 3 November, but by then thousands of people had bought into the accounts. It is honouring the higher rate, for these people,” she said.

The net financing figure excludes Green Savings Bonds, as they are a policy product and these attracted £900m in savings deposits.

So far in the 2023/24 financial year where NS&I has a funding target of £7.5bn (plus or minus £3bn), it said deposits have returned to “more normal levels”.

In April, the Bank of England’s money and credit report revealed inflows of £1.6bn, followed by £800m in May.

NS&I to ‘err on the side of caution’ over rate rises

But as NS&I’s mandate is to “strike a balance between the interests of savers, taxpayers, and the broader financial services sector”, experts say it may need to stop raising rates or curb increases.

Laura Suter, head of personal finance at AJ Bell, said in the first two months of this financial year already, NS&I has achieved almost a quarter of its funding target.

“Despite that, they will raise the rates on Premium Bonds and Junior ISAs once again from July. But, they increased Premium Bonds to 3.7%, so not near current market rates for easy-access accounts, which will dampen popularity.

“I think in normal times we’d be expecting them to either stop raising rates or start cutting them, but with rates on other savings accounts in the market still rising by so much and with expectations of another couple of interest rate rises from the Bank of England, I think we’re more likely to either see much smaller rate increases or just no further hikes to rates from NS&I.

“They have a new chief executive and they overshot the target last year, so I’d expect they will be erring on the side of caution this year not to overshoot that target.”

Coles added: “Busting the fundraising limit by £1 billion means missing a key target, and raises concerns that the institution will be more cautious about raising rates and adding to the Premium Bond prize fund, in case there’s even more cash waiting in the wings.”