Bad news for savers: NS&I cuts Isa interest rate

Last updated: Dec 9th, 2013
News by Mark King
Pound in life ring

There's more bad news for savers as National Savings & Investments (NS&I), the government-backed bank, has slashed the interest rate on its Direct ISA, from 1.75% to 1.5%.

The change will come into effect on 27 February 2014, and NS&I will be notifying affected customers at least sixty days in advance.

NS&I said it had to cut the rate in order to "balance the interests of its savers, taxpayers and the stability of the broader financial services sector".

Jane Platt, NS&I chief executive, said: "The Direct ISA rate stood out in our review of competitor rates offered on Isas with no bonus component. We consider the revised rate offers a fair rate to customers in the current interest rate environment."

On 1 August 2013, NS&I cut the premium bond prize fund rate from 1.5% to 1.3%, making it harder to win a monthly prize. It meant the total number of prizes was slashed from 1,903,314 in July 2013 to 1,751,061 the following month - taking the odds of any £1 Bond number winning a prize from 24,000 to 1 to 26,000 to 1.

It’s not necessarily all doom and gloom, however. In the Autumn Statement, the chancellor announced the government’s net financing target for NS&I in 2013-14 had been revised upwards by £2 billion.

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Targets

NS&I had been working towards a net financing target for the year of £0 (give or take £2 billion either way), but it was on track to deliver net financing of £3.5 billion - way above target. With a newly-revised goal of £2 billion (again, give or take £2 billion either way), NS&I does not need to do anything drastic - such as make more cuts to interest rates - to meet the earlier, lower target.

Had it been forced to reduce its net financing, it would likely have had to cut rates so that more savers cash-in their NS&I products.

Platt continued: "We know that we occupy a unique position at the heart of the UK savings market. We work hard to ensure we continue to strike a balance between the interests of our savers, taxpayers and the broader savings sector.

"[The] increase in our net financing target means that savers can continue to invest with us at fair rates."

NS&I customers can sign-up for email notification of all NS&I interest rate changes and other NS&I at nsandi.com/savings.

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