NS&I will be reducing interest rates later this year after experiencing “extremely high demand” for both its variable-rate and fixed-term products.
The savings provider will reduce rates on the products from November 24, with those on its easy access ‘Direct Saver’ account falling from 1 per cent to 0.15 per cent (gross/AER).
Rates on its investment account will fall 79 basis points, from 0.8 per cent to 0.01 per cent, while income bonds will fall by as much as 115 basis points, also to 0.01 per cent.
Its premium bonds prize fund rate will also be reduced, from 1.4 per cent to 1 per cent, applying from the December 2020 draw.
According to NS&I, the reductions will see the provider “align” its savings products with rates offered by other banks and building societies.
Ian Ackerley, chief executive at NS&I, said: “Given successive reductions in the Bank of England base rate in March, and subsequent reductions in interest rates by other providers, several of our products have become ‘best buy’ and we have experienced extremely high demand as a consequence.
“It is important that we strike a balance between the interests of savers, taxpayers and the broader financial services sector; and it is time for NS&I to return to a more normal competitive position for our products.”
The average easy access rate across providers was 0.22 per cent based on a £5,000 deposit at the start of the month, according to Moneyfacts.
Since March 19 the bank rate has stood at a record low of 0.1 per cent.
Commenting on the cuts, David Gibb, chartered financial planner at Quilter, said: “The cuts announced are significant and from next month will take NS&I from the top of the best buy tables right down to the bottom.
"Savers have had to contend with paltry rates from banks and building societies for well over a decade now, and it appears rates have somehow managed to get worse."
Anna Bowes, co-founder of Savings Champion, said: “While a cut of some description was not completely unexpected, the savageness of the cuts will be devastating, not least to all those who have battled to deposit money with NS&I over the last few months.
"They are effectively closing the door on many savers by offering rates as low as those being paid by the high street banks.”
Variable rate savings products
Current interest rate
Interest rate from 24 November 2020 (change in brackets)
0.15% gross/AER (-85 basis points)
0.01% gross/AER (-79 basis points)
1.15% gross/1.16% AER
0.01% gross/0.01% AER (-114/115 basis points)
0.10% gross/AER (-80 basis points)
1.50% gross/AER (-175 basis points)
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