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What the NS&I interest rate cut means for savers

We look at the potential impact on the savings market as NS&I announce a cut to their market leading savings rates.

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 announced a series of dramatic cuts to its savings rates and premium bond prizes.

This will come as a blow to millions who save with them. And now makes it even harder for people to get a good return on their cash.

The premium bond prize fund interest rate is to be cut from 1.40% to 1.00% from December. And crucially their Income Bonds, which have been offering a market-leading instant access rate for months will be cut from 1.16% AER to just 0.01% from 24 November.

Product Existing rate New rate
Premium Bond 1.40% 1.00%
Income Bond 1.16% 0.01%
Direct ISA 0.90% 0.10%
Direct Saver 1.00% 0.15%
Investment Account 0.80% 0.01%
Junior ISA 3.25% 1.50%
Source: NS&I website

Waiting for a great savings rate? Register for alerts and we’ll tell you when new rates are added to Active Savings. You can even select the products you’re most interested in.

Why has NS&I cut rates?

NS&I has topped the savings market recently by offering market-leading rates on instant access savings. This supported lots of us savers at a time when banks and building societies were cutting their rates.

It also helped to support the government’s finances. However, it’s been more expensive for the government to raise money in this way than through other means, like issuing gilts (government bonds) through the Debt Management Office.

When you save with NS&I, you’re lending money to the government. HM Treasury set NS&I a cap on the amount of money they can bring in. In the wake of Covid-19, this increased from £6bn to £40bn, in July.

What will the NS&I cuts mean for the market?

Several small banks and building societies are tucked in behind NS&I in the rate tables. But they might not have the capacity to cope with the surge in demand you get by offering the top rate in the market.

So we could see other banks announce similar cuts or withdraw products from offer. And over the coming weeks, rates and available products are likely to change rapidly.

Savers will need to keep a close eye on their money and be ready to switch to get a better return on their cash.

What can savers do?

Firstly, you should think about looking beyond the high street banks. Most of the big players are offering just 0.01% on instant access accounts. And their fixed rate bonds are uncompetitive too.

You could also think about mixing different types of savings products.

While it’s a good idea to keep your emergency money in an instant access account, it might not be best to keep all your savings there. You could consider fixed-term savings if you don’t need quick access to your cash.

Fixed-term products typically give you a better rate than instant or easy access accounts. You can normally fix from as little as 1 month, up to 5 years – the longer you fix for, the better the rate usually is.

And because it’s a fixed rate, for a fixed amount of time, you’ll know exactly how much interest you’ll get, and for how long. This can guard against further potential rate cuts, but the trade-offs are you won’t benefit from any potential rate rises and you can’t usually access your money until the product matures.

The problem is lots of banks don’t offer enough choice, and it’s a hassle having your savings in different places.

That’s where Active Savings could help.

A better way to manage your savings

With Active Savings you can pick and mix easy access and fixed-term savings products from a range of banks and building societies, all in one online account.

You’ll save time and effort without having to open new accounts and prove who you are every time you open products with new providers. You’ll have one account, with one set of security information to remember. And you’ll be able to see all your savings together in one place, making it easier to manage.

There are competitive rates on offer, far above those offered by high street banks.

Discover Active Savings

Products available through Active Savings can be added or withdrawn at any time. Minimum deposit requirements apply to individual products. Instant access products allow immediate cash withdrawals, Active Savings offers easy access products where withdrawals usually take one working day. Inflation can reduce the spending power of money.

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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