NS&I customers holding its T Cash ISA or Cash ISA, which currently pay a paltry 0.5%, will automatically have their money transferred into the company's Direct ISA paying 2.25%.
The move, which will happen 25 May, forms part of NS&I's decision to simplify and modernise its savings range and will see customers enjoy a rate which is 4.5 times better than the one they currently have.
The new minimum investment amount for the Direct ISA will also be lowered from £100 to £1.
In addition, from 1 April customers will no longer be allowed to make cash investments into premiums bonds over the Post Office counter. However, they will still be able to invest in premium bonds by cheque and debit card at the Post Office or directly from NS&I by post, phone, online or standing order.
Jane Platt, Chief Executive, NS&I, says: "Since 2007 we have been working to simplify and modernise our range of savings products and to encourage our customers to invest with us directly.
"From 25 May 2013, customers holding our Cash ISA will benefit from the much higher interest rate paid on our Direct ISA. There will be some changes for our customers who use the Post Office - however, staff in our UK based contact centres will be on hand to help with the transition."