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NS&I interest rates are cut next week – are you affected?

With NS&I rate cuts coming into effect next week, we look at why savers need to take action with their cash and what options are available. Plus, how you could qualify for cashback.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

National Savings & Investments (NS&I) has been heading up the instant access savings tables for months with their Income Bonds. But on Tuesday 24 November, the interest rate is being slashed dramatically from 1.16% to 0.01%. Any balances of less than £646 won’t earn any interest at all.

This is part of a wider set of cuts across their range of variable rate savings products.

Premium Bonds haven’t avoided the chop either. The interest rate on the annual prize fund is dropping from 1.40% to 1.00% from the December draw. And you’re much less likely to win – the odds have ballooned from 24,500:1, to 34,500:1.

Account Old rate (AER) New rate (AER)
Premium  Bond Prize Fund 1.40% 1.00%
Direct ISA 0.90% 0.10%
Direct Saver 1.00% 0.15%
Income Bonds 1.15% 0.01%
Investment Account 0.80% 0.01%
Junior ISA 3.25% 1.50%

Source: NS&I website, 16 November 2020.

The cuts come as a major blow to 25 million savers, who have poured in billions of their hard-earned cash since the pandemic hit.

Are you waiting for a great savings rate? Sign up to our alerts and we’ll tell you when a great rate is added to Active Savings.

Why has NS&I cut its interest rates?

NS&I are backed by the UK government. So by saving with NS&I, you’re essentially loaning your money to the government. NS&I are set a target by HM Treasury in terms of the amount of money they can raise. In the wake of Covid-19, their target increased from £6bn, to a maximum of £40bn for the year.

But even this dramatic increase couldn’t absorb the public’s demand. In the last two quarters alone, they’ve raised £38.3bn. Ultimately, it only delayed the inevitable rate cuts for a short time.

NS&I’s decision is therefore aimed at controlling the amount of money it’s raising. And the taxpayer will benefit as the government will be able to raise money more cheaply. Based on figures in their most recent annual report, the rate cuts will save the Treasury more than £250m in interest on the Income Bonds alone.

What about the rest of the savings market?

Savings rates have suffered during the pandemic. At the start of the new year, the average rate on an instant access account was 0.41%. It’s now 0.08%. Similarly, a 1 year fixed rate has dropped from 1.03% to 0.39%.

Chart showing average savings rates

Source: Bank of England, 31 October 2020

Most of the large banks now offer just 0.01% on their instant access accounts, in line with NS&I’s new rate on the Income Bonds and Investment Account. It’s becoming increasingly harder for savers to earn a good return on their cash.

Smaller banks, who usually need to offer headline rates to bring money in, have found it hard to compete with NS&I while still operating profitably.

When competitive products have been available through smaller banks, they’ve filled and been withdrawn quickly. The last few months have been a case of blink and miss it.

So what does it mean for savers?

Over a quarter of us know we should be switching our cash, according to our recent survey, but we’re not getting around to it or think it’s too much hassle. Nearly half of those who aren’t switching say it’s because they don’t think rates are worth it.

But these latest rate cuts from NS&I could mean if you don’t take action, it’s likely your money will be sat idly by, earning next to nothing.

All is not lost. There are much better rates around, and switching doesn’t have to be as much hassle as you might think.

Active Savings – an easy way to boost your cash

Active Savings could help. One online account gives you access to a range of easy access and fixed term savings products from our panel of banks and building societies. You’ll find a choice of competitive rates, far above comparable products offered by NS&I and the large high street banks.

You can currently get 54 times more on an easy access account and more on a fixed term, if you’re prepared to lock your money away for a set period of time.

Easy access accounts pay a variable rate which could change in the future. But fixed terms pay a fixed rate for the duration of the product, so you know exactly what you’ll earn. Please note, instant access products allow immediate withdrawals. The Active Savings service offers easy access products and withdrawals usually take one working day.

We’ll even send you alerts when great rates are added, so you can keep your money working hard. You’ll see everything together, alongside your other Hargreaves Lansdown accounts, making it easy to manage.

Getting started is easy and you can be set up in minutes. You could also qualify for cashback.

With fixed term savings you can't usually withdraw your money until the term has ended. Inflation can reduce the spending power of money.

The best rates on Active Savings

Easy access

Up to
0.55% | 0.55%
(AER | Gross)

Up to 1 year

Up to
1.00% | 1.00%
(AER | Gross)

Up to 2 years

Up to
1.20% | 1.20%
(AER | Gross)

Up to 3 years

Up to
0.90% | 0.90%
(AER | Gross)

Easy access

Up to
0.55% | 0.55%
(AER | Gross)

Up to 1 year

Up to
1.00% | 1.00%
(AER | Gross)

Up to 3 years

Up to
0.90% | 0.90%
(AER | Gross)

Find out more

Please note the products above are some of our most popular, but more are available. Click the link above to see our full range. Products can be added or withdrawn at any time. Minimum deposit requirements apply to individual products.

AER (Annual Equivalent Rate) shows what the interest rate/expected profit rate would be if it was paid and compounded once each year. It helps you compare the rates on different savings products. Once you have opened a fixed term product the rate won't change, but rates on easy access products can vary.

Gross means the rate without any tax removed. Interest/profits are paid gross. You are responsible for paying any tax due on interest/profits that exceed your Personal Savings Allowance to HM Revenue & Customs. Tax treatment can change.

Get cashback on your savings as a thank you

Get cashback in 2 easy steps:

  1. Open an Active Savings account by 2 December.
  2. Add at least £10,000 by debit card and choose your savings products within 60 days.

If your balance drops below your cash offer qualifying amount within 6 months we may reclaim your cashback. Terms apply.

The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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