InvestmentsApr 6 2016

NS&I slashes interest rates on savings accounts

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by

National Savings & Investments (NS&I) has dealt a blow for millions of savers by cutting the interest rates on five of its products and reducing the number of premium bond prizes.

From June, changes to NS&I’s variable rate products, which include the Direct Isa, Direct Saver, Income Bonds and the Investment Account, will come into force.

Rates for the Direct Isa had already been cut in November, and over recent years the body has made a number of dramatic reductions in rates and increased the holding limit on premium bonds.

The number of tax-free premium bond prizes will also be slashed, meaning the chances of winning will be 30,000 to one, instead of 26,000 to one.

ProductCurrent Rate New rate
Direct Isa1.25% tax-free/AER1.00% tax-free/AER
Direct Saver1.10% gross/AER0.80% gross/AER
Income Bonds1.25% gross/AER1.00% gross/AER
Investment Account0.75% gross/AER0.45% gross/AER

The state-owned investment organisation said the decision reflects its target for 2016/17, which stands at £6bn. This comes after HM Treasury told NS&I to raise a smaller amount of cash for the Government in the next tax year than it did in the 2015/16 year.

In the current financial year, NS&I is expected to raise £11.5bn against a £10bn target.

“Downward movements in interest rates across the cash savings market mean our rates have risen in the competitor tables” Jane Platt

Jane Platt, chief executive of NS&I, said: “It is always a difficult decision to reduce rates, but downward movements in interest rates across the cash savings market mean that our rates have risen in the competitor tables.

“NS&I aims to strike a balance between the needs of savers, taxpayers and the stability of the broader financial services sector, while raising the required level of net financing for the Treasury.”

Ms Platt was confident the new rates would offer “positive value” to taxpayers, stating most would be the same or above average market rates.

Changes to Index-linked Savings Certificates will only affect those customers who renew certificates which mature on or after 28 March.

NS&I will notify those customers who hold affected savings accounts over the coming weeks, it added.

Adviser view:

Dan Elkington at Lincolnshire-based Chattertons Solicitors, said the rate slash was disappointing, but inevitable. He said: “We have, for many years, told clients it is worth considering ditching their normal cash assets and to simply buy into the best guarantee on the marketplace.

“If you look at the other products, such as savings bonds, they are not intended to be market-beating, but offer competitive rates and higher guarantee levels.”

katherine.denham@ft.com