NS&I set to slash interest pay-outswritten by Bella Palmer
It comes amid warnings some banks could soon charge customers to hold their cash, while others could impose mandatory fees on current accounts
NS&I is set to slash interest pay-outs for millions of savers on Tuesday, with the Premium Bonds prize rate also falling to just 1%.
National Savings & Investments said its easy-access account will fall to 0.01% on November 24, reflecting the Bank of England's record low base rate.
It comes amid warnings some banks could soon charge customers to hold their cash, while others could impose mandatory fees on current accounts to make up for losses on loans and mortgages.
Under changes to its savings products, NS&I's direct saver will drop from 1% to 0.15%. Its investment account will fall from 0.80% to 0.01%.
NS&I's Junior ISA, which is available up until the age of 16, will also fall to 1.5% from 3.25%.
Ian Ackerley, NS&I chief executive, said its slashing rates to cope with huge demand.
He said, 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.
It is important that we strike a balance between the interests of savers, taxpayers and the broader financial services sector; and it is time for NS&I to return to a more normal competitive position for our products, Ackerley said.
At the moment, the prize rate for Premium Bonds is 1.4%, which means each £1 bond has a 1 in 24,500 chance of winning any prize.
However, from December 1, the odds will be lowered to 1 in 34,500, with over a million fewer prizes set to be given out in December than in September.
NS&I, which runs Premium Bonds, had planned to cut the prize rate to 1.3% earlier this year, however the changes were put on hold due to the pandemic.
The decision comes also just months after NS&I increased its target to £40billion, bringing relief to tens of thousands of savers.
The government made it clear it wanted NS&I to raise more funds, but with economic uncertainty strife right now it has changed tack and wants a nation of spenders rather than savers, David Gibb, at investment platform Quilter explained.
The cuts announced are significant and from next month will take NS&I from the top of the best buy tables right down to the bottom. Savers have had to contend with paltry rates from banks and building societies for well over a decade now, and it appears rates have somehow managed to get worse, he said.
Kevin Brown, savings specialist at Scottish Friendly, said the decision to axe rates is a "devastating blow" for savers.
He 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. Only in March, NS&I cancelled plans to cut rates on its premium bonds and variable savings accounts to help support savers during the coronavirus.
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