NS&I is to reduce interest rates on four of its variable rate products as a delayed reaction to the Bank of England's decision to reduce its base rate to 0.25 percent.
The rates on a Direct ISA account and an Income Bond have fallen from 1 per cent to 0.75 percent, while the rate on a Direct Saver account has fallen from 0.8 per cent to 0.7 per cent. The changes will come into effect on 1 May 2017.
Steve Owen, acting chief executive at NS&I, said the decision had not only factored in the Bank of England rate cut but subsequent changes across the savings market.
"The new rates reflect current market conditions and allow us to continue to strike a balance between the needs of our savers, taxpayers and the stability of the broader financial services sector," he said.
"We appreciate that savers will be disappointed, but we believe that the new rates present a fair offer to customers, who will continue to benefit from our 100 per cent HM Treasury guarantee on all holdings, as well as tax-free prizes for Premium Bonds."
NS&I has sought to sweeten the impact of these rate cuts with the launch of Investment Guaranteed Growth Bonds. This is a 3-year savings bond open to those aged 16 and over who can invest a maximum of £3,000.
The bonds will be available at nsandi.com for 12 months from spring 2017 with an indicative interest rate of 2.20 percent gross/AER. The precise rate will be confirmed nearer to launch.
Danny Cox, chartered financial planner, Hargreaves Lansdown predicted that savers who had in the past favoured the "cast iron security" of NS&I bonds would now look elsewhere.
“This cut in interest rates is another devastating blow for millions of savers and the new launch of Investment Guaranteed Growth Bonds will be of little compensation. Ironically with so little interest on cash for savers, Premium Bonds look more attractive – if your savings are returning basically nothing, you might as well opt for the chance of the jackpot prize."
