National Savings & Investments (NS&I) has announced cuts to the interest rates on some of their most popular savings accounts.
Announcing the interest rate cut, NS&I said that the reductions reflected market trends on comparable products. Furthermore, according to NS&I, the changes will “continue to balance the interests of its savers, taxpayers and the stability of the financial services market.”
Since the introduction of the Funding for Lending Scheme in August last year, which provided banks and building societies with a cheap source of finance, interest rates on savings accounts have been cut across the board.
Although its customers will be disappointed, the interest rate cut from NS&I will come as no surprise.
Interest rate cuts on NS&I savings accounts
The interest rate cuts on the three products are significant.
Product Old interest rate (gross pa) New interest rate (gross pa) Cut
Direct ISA 2.25% 1.75% 0.50%
Income Bonds 1.75% 1.25% 0.50%
Direct Saver 1.50% 1.10% 0.50%
Jane Platt, Chief Executive, NS&I, said: “Rates across the savings market have fallen over recent months and to ensure we continue to strike a balance between the needs of our savers, taxpayers and the stability of the broader financial sector, we have taken the difficult decision to reduce the rates on our Direct ISA, Direct Saver and Income Bonds accounts.”
NS&I are one of the largest providers of savings accounts in the UK, with over 25 million customers investing over £100 billion. Since the financial crisis and the high profile failure of some of the UK’s biggest banks, savers have been pouring money into NS&I safe in the knowledge that 100% of their deposits are protected, no matter the size of their balance.
Experts however believe that the interest rate cut, which won’t take place until September, will force savers to reconsider their options.
Whilst savings with other banks and building societies are only protected up to a maximum of £85,000 under Financial Compensation Scheme rules, it is likely many savers will go in search of a better deal. Even if it means splitting their savings between a number of financial institutions to ensure it is protected.
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