NS&I cuts interest rates for millions of savers

Millions of savers were dealt a blow after National Savings & Investments cut the interest rates on many of its accounts. NS&I has also slashed the number of premium bond prizes, thereby reducing people’s chances of winning.

The rate on the investment account, held by more than 1.7 million people, will fall from 0.75% to 0.45%, while the 415,000 holders of the Direct Isa will see their rate drop from 1.25% to 1%. The direct saver rate will fall to 0.8% from its current 1.1%, while income bonds will now pay 1%, down from 1.25%.

Meanwhile, the premium bond prize fund rate - the proportion of the total amount invested paid out in prizes - is being cut from 1.35% to 1.25%. This reflects the fact that the total number of prizes will fall to an estimated 2m in June - the equivalent figure for this month is just over 2.3m.

As part of the changes, NS&I has reduced the number of higher-value prizes and increased the number of smaller ones. For example, there will be just two £100,000 prizes in June, compared with five this month.

The changes partly reflect the fact that NS&I is looking to raise less money in the next financial year than it did this year. It is also a response to rivals dropping their rates, making the government-owned institution’s returns look more appealing.

Jane Platt, NS&I’s chief executive, said: “It is always a difficult decision to reduce rates, but downwards movements in interest rates across the cash savings market mean that our rates have risen in the competitor tables.”

She added: “The majority of the new interest rates on offer are either at or above average market rates. We believe they present a fair offer to customers, who will also continue to benefit from our 100% HM Treasury guarantee.”

Danny Cox, a chartered financial planner at investment firm Hargreaves Lansdown, described the announcement as a “serious blow for savers”, who liked the absolute security offered by NS&I, but now faced even lower returns on their cash.