National Savings & Investments (NS&I) is slashing the rates on its easy-access ‘Direct ISA’ from one per cent AER to 0.75 per cent AER, in a new blow to cash savers.
In a statement, NS&I said that it was reducing its rates in order to “deliver positive value for taxpayers”. However, the news is likely to disappoint millions of conservative savers who were expecting interest rates to rise following next month’s Bank of England monetary policy meeting.
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“We have taken the decision to reduce the interest rate on our Direct ISA to deliver positive value for taxpayers,” said Jill Waters, NS&I’s retail director.
“As part of our operating framework, we must ensure that we continue to strike a balance between the needs of our savers, taxpayers and the stability of the broader financial services sector.
“Our Direct ISA continues to give savers the opportunity to earn a fair rate and benefit from tax free interest.”
NS&I is one of the most popular savings organisations in the UK, with more than 25 million customers. All of its products are backed by HM Treasury, so investor capital is 100 per cent secured.
The organisation recently cut its bond rates and reduced the maximum deposit limit from £1m to £10,000 in an effort to curb the huge demand from savers. According to analysts, this new rate cut was similarly unavoidable.
“This is blow to loyal NS&I savers: in a market where other providers are pushing rates up, it’s disheartening to see rates cut, but NS&I had little choice in the matter,” said Sarah Coles, personal finance analyst a Hargreaves Lansdown.
“It has to maintain a difficult balance between offering reasonable rates to savers – and not attracting so much cash that it overshoots its target. This year its target has been lowered to £6m, so it has to take steps to attract less cash. It has already cut the rate on its guaranteed bonds and slashed the maximum that can be invested in them, so this was the next logical step.”
The new interest rate will kick in on 24 September 2018 and will apply to all new and existing customers.