NS&I cuts Isa rate - where now for your savings?
More than 400,000 National Savings & Investments (NS&I) Isa customers will see the interest on their Isas slashed in mid-November.
The rate on the NS&I Direct Isa will fall by 0.25 percentage points to 1.25% on 16 November.
According to the Bank of England, average rates received on instant access Isas have fallen from 1.09% to 1.01% over the year to August.
Jane Platt, chief executive at NS&I said: "Interest rates in the easy access ISA market have been in decline over the year and our Direct ISA rate has stood out at the top of the best buy tables for some time.
"To ensure that we continue to strike a balance between the needs of our savers, taxpayers and the stability of the broader financial services sector, we have taken the difficult decision to reduce the rate on our Direct ISA."
Where can I find the best instant-access Isa rate?
The Direct Isa was one of the best instant-access accounts on the market, though a handful of providers currently offer better terms.
If you can find a branch to open an account, the Punjab National Bank pays 1.65% AER on balances over £1. The bank has seven branches in the UK, in Central London, Southall, Leicester, Birmingham, Illford, Wembley and Wolverhampton.
Danske Bank pays 1.6% AER on balances over £30,000, but just 0.4% on smaller deposits. You can transfer cash Isa savings into the account, which can be opened in-branch or over the phone.
If you're looking to save regularly, the Buckinghamshire Building Society Chiltern Golden Nuggets account (issue 4) pays 2% AER on balances over £10 if you pay in regularly. You can open the account in branch or by post. You're just allowed one interest-free withdrawal per year, otherwise the interest rate plummets to 0.1% AER.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.