NS&I cuts best-buy Isa rate
National Savings and Investments (NS&I) is cutting the rate on its best-buy Direct Isa from 1.5% to 1.25% from Monday 16 November.
The government-owned deposit taker, which manages savings and investments for 25 million people in the UK, said the rate cut is a response to declining interest rates offered by other banks and building societies.
Bank of England figures published on Tuesday confirm Isa rates are still falling. The average rate paid on an instant access Isa was 0.98% in October, compared to 1.09% a year ago.
Jane Platt, NS&I chief executive, 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.”
Platt added that savings with NS&I are guaranteed by the government, unlike other deposit takers which offer £85,000 protection per institution under the financial services compensation scheme (FSCS). This could become more valuable to savers in the new year, when FSCS compensation levels drop to £75,000.
Currently, Moneywise’s top pick for instant access Isas is Nationwide’s Flexclusive account, which pays 1.6% AER but is only available to existing customers. Virgin Money also offers a 1.56% AER account, for customers making three-or-fewer withdrawals a year.
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.
The Financial Services Compensation Scheme is the compensation fund of last resort for customers of authorised financial services firms. If a firm becomes insolvent or ceases trading, the FSCS may be able to pay compensation to its customers. Limits apply to how much compensation the FSCS is able to pay, and those limits vary between different types of financial products. However, to qualify for compensation, the firm you were dealing with must be authorised by the Financial Services Authority (FSA).
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.