NS&I to slash savings rates and Premium Bonds prizes

Government-backed body to reduce returns on direct saver, investment account and Isas

Millions of savers with NS&I have been dealt a blow after it announced it would slash interest rates in November and cut the Premium Bonds prize fund a month later.

Savers with NS&I’s popular direct saver account will receive a cut in rates from 1% to just 0.15%, while the return on income bonds – which had been best buys – will plummet from 1.15% to 0.01%.

The government-backed organisation, which has 25 million customers, said there would be cuts to variable rate accounts and some fixed rates as it attempted to “strike a balance between the interests of savers, taxpayers and the broader financial services sector”.

It had become a first port of call for savers looking for returns after the Bank of England cut interest rates to a record low and savings providers started to follow suit.


Last week, the Bank voted to hold the base rate at 0.1%, but said it was looking at the possibility of cutting it to below zero.

The cuts announced by NS&I on Monday are deeper than those NS&I had planned earlier in the year but then put on hold as the pandemic hit, and were described by experts as a “devastating blow” for savers.

From 24 November, returns on the direct saver, investment account, income bonds and NS&I’s Isas will fall.

The junior Isa will remain the best-paying account it offers, but rates will drop from 3.25% to 1.5%. Rates on the direct Isa will fall from 0.9% to 0.1%.

The changes to Premium Bonds, which come into effect for the December prize draw, will reduce the prize fund from an effective interest rate of 1.4% to 1%.

For bondholders that means the odds of any one £1 number winning a prize will decrease from 24,500-1 to 34,500-1.

There will still be two chances to win the £1m jackpot each month, but the number of £100,000 prizes will fall from seven to four and there will be cuts across all of the other prizes.

Ian Ackerley, the NS&I chief executive, said: “Reducing interest rates is always a difficult decision.

“In April we cancelled interest rate reductions announced in February and scheduled for 1 May. Given successive reductions in the Bank of England base rate in March, and subsequent reductions in interest rates by other providers, several of our products have become ‘best buy’ and we have experienced extremely high demand as a consequence.”

The dearth of decent savings rates has gone hand in hand with a rise in deposits in banks and building societies as workers who have kept their jobs but have not been able to spend as usual have built up reserves of cash.

Last week, Skipton building society had to pull a best-buy savings account after three days after a rush of customers to sign up, and according to financial information firm Moneyfacts, average interest rates across all kinds of accounts are generally down by more than half on this time last year.

NS&I is set a financing target by the Treasury each year. This was raised from £6bn to £35bn after the pandemic hit to help the government pay for its crisis measures, but between April and June £19.9bn flowed into accounts and demand has remained similarly high over the summer.

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

Kevin Brown, a savings specialist at the Scottish Friendly society, said: “This announcement is a devastating blow for savers as NS&I has acted as a shield against the market’s heavy rate cuts in recent months.”

He added: “With this last stand now coming to an end, cash savers will feel they have almost nowhere to turn.”

Sarah Coles, a personal finance analyst at stockbroker Hargreaves Lansdown, said she expected more cuts from other providers.

“This won’t be the end of it. Competitive accounts in the easy access market – who have been forced to keep within shouting distance of NS&I in order to raise cash – will be able to cut back too. It means we’re likely to see the best rates disappear.”


Hilary Osborne

The GuardianTramp

Related Content

Article image
The best savings deals as NS&I slashes rates and Premium Bonds prizes
Millions of account holders face deep cuts from next month, but there are alternatives

Rupert Jones

25, Sep, 2020 @8:30 AM

Article image
Savings: instant access accounts slash rates after NS&I cut
Customers of easy access accounts and Isas move cash in search of a good deal

Rupert Jones

01, Dec, 2020 @7:00 AM

Article image
UK savings rates rise, but still lose out to cost of living
We pick short-term accounts and Isas that sould give you a return nearer the inflation rate

Miles Brignall

17, Feb, 2018 @1:43 PM

Article image
Why savings rates may be heading for zero – and what to do
With Britain’s leading providers cutting interest rates, things are not looking good for savers

Rupert Jones

07, Sep, 2019 @7:30 AM

Article image
Premium bonds: more big prizes – but what are your chances?
An extra £80m will be available next month after a shake-up by NS&I. But the odds of winning are 24,000-1

Rupert Jones

16, Dec, 2022 @12:52 PM

Article image
Tesco Bank offers savings bonds with 5% yield
Company hopes deal with prove a hit with customers, as it seeks out further ways to fund its operations

Jill Treanor

02, May, 2012 @7:30 PM

Article image
Savings: Britons urged to act soon as some interest rates pass 4%
Consumers have got used to poor returns on savings accounts, but there are now better deals

Miles Brignall

12, Jan, 2023 @7:00 AM

Article image
UK savings rates are tumbling – what can you do?
Frustration over choices is putting people at risk of scams but there are accounts worth considering

Rupert Jones

07, Aug, 2021 @9:00 AM

Article image
Savings: with rates at rock bottom, is there anything you can do?
The prospect of interest rates being cut even further, possibly by another 0.25%, looms next year

Shane Hickey

15, Dec, 2019 @9:14 AM

Article image
What would negative interest rates mean for mortgages and savings?
Variable-rate mortgages may fall a little, and it seems unlikely banks will charge to hold savings

Hilary Osborne

21, May, 2020 @2:40 PM