Millions of savers with NS&I will see their returns plummet from the end of next month and may be looking for new homes for their cash.
NS&I is reducing the interest on its popular Direct Saver account from 1% a year to just 0.15% with effect from 24 November, and on its Income Bonds from 1.16% to just 0.01%. The rate on its Direct ISA will fall from 0.90% to 0.10% on the same date, whilst the Premium Bond prize fund rate will reduce from 1.4% to 1% from December
Tim Bennett, head of education at stockbrokers Killik & Co said: “The government has traditionally been a “go-to” for savers with its’ older range of index-linked savings certificates, and newer direct savings accounts and income bonds plus its popular premium bonds. “However, with rates being cut on income bonds to just 0.01% and on the direct saver product to 0.1% in just two months’ time, alongside premium bond prizes being reduced and stories abounding about the difficulty of getting transactions processed, anyone looking for a home for emergency cash may want to look elsewhere for the time being.”
Alternative options for savers
It’s not all doom and gloom for savers, with rates on some types of savings account actually improving last month. Cash individual savings account (ISA) rates, for example, rose in September according to financial website Moneyfacts.co.uk, the first month since March this year that they’ve increased. The average five-year fixed cash ISA rate is currently 1.18%, up from 1.09% on 1 September, while the average easy access ISA rate has risen from 0.32% to 0.35%.
However, a spokesman for Moneyfacts.co.uk said; “With the base rate remaining at 0.1% and the possibility of it falling into a negative rate by the end of this year or early 2021, it is uncertain if ISA rates will continue to rise. As such, for those looking to transfer an ISA, waiting to see if rates rise further may be risky and instead they may be better off securing the top ISA rates available now.”
The current best buy easy access cash ISA is Cynergy Bank’s Online ISA Issue 5, which pays 1% annual interest on a minimum opening balance of £1, according to savings website SavingsChampion.co.uk. The best five-year fixed rate ISA is from Hodge Bank, and pays 1.4% on a minimum investment of £1,000. Unusually for a fixed rate account, withdrawals are allowed, but you’ll lose 365 days’ interest if you take money out during the ISA’s five-year term.
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If you just want an easy access savings account rather than an ISA, Coventry Building Society and Principality Building Society currently offer the best rates with their Double Access Saver Online 2 and Online Limited Access accounts paying 1.1% and 1.05% respectively. However, although these accounts are marketed as easy access accounts, you can only make two withdrawals a year from the Coventry account without charge, and the Principality account only allows up to three withdrawals per calendar year.
Anna Bowes, co-founder of SavingsChampion.co.uk said: “Many savings accounts now include various terms and conditions that could confuse savers – therefore, although you might need to act quickly, it is important to fully understand how an account works so that you don’t unwittingly end up earning less than you thought - or not have the access you need.”