NS&I slashes savings rates and premium bond prizes

Savers are being urged to seek out private sector alternatives for their savings after the government's savings behemoth, National Savings & Investments, cut rates across its range and reduced the number of premium bond prizes on offer.

The BBC reports that savings rates on "direct Isas, direct saver, income bonds and the investment account" will be cut from 6 June. The proportion of premium bond funds being paid out has been revised to a seven-year low, adds the Daily Mail. Around 23.5 million customers will be affected.

The BBC adds that the cuts are necessary because "NS&I has been told by the Treasury to raise less money… than it did in the current tax year", in part because "it is currently cheaper… to raise money by issuing government bonds than through NS&I".

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NS&I savings rates were better than average in many cases, The Financial Times says, and this had led to it taking in £11.5bn more in deposits than it paid out in the 2015/2016 financial year against a Treasury target of £10bn. Its funding target has been reduced to £6bn for 2016/17.

The state-owned savings bank is not supposed to offer rates that are substantially better than those available in the private sector as this can deprive banks and building societies of much-need funding.

"Falling rates across the cash savings market have seen our rates rise in the best buy tables," said Jane Platt, the chief executive of NS&I. "The changes allow us to manage demand for our products and meet our new net financing target."

The Daily Mail points out that the reforms mean there are now better rates available on products elsewhere. For example, Coventry Building Society's easy access Isa is currently paying 1.4 per cent, while Yorkshire Building Society will allow existing NS&I savings to be transferred into an account paying 1.35 per cent.

One major advantage for NS&I is that all funds held are 100 per cent guaranteed by the Treasury, while this is only true for savings of up to £75,000 in cash accounts in a high street bank.