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

Published by Mark King on 09 December 2013.
Last updated on 09 December 2013

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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