NS&I reductions in rates due to hit 23.5 million savers
Millions of savers have been dealt another blow as NS&I (National Savings and Investments) announced a string of rate cuts.
Some 23.5 million customers will be affected by rate changes to some variable rate products offered by NS&I.
Among the cuts, from June 6, the rate on NS&I's Direct Isa will fall from 1.25% to 1%, with the Direct Saver falling from 1.1% to 0.8% and Income Bonds falling from 1.26% to 1%.
NS&I plans to make changes to Premium Bond prizes. From June 2016, the odds of winning will change from 26,000 to one to 30,000 to one.
The provider expects the changes will mean, for example, that the number of £100,000 prizes would fall from five in March to two in June and the number of £50,000 prizes would fall from 12 in March to five in June.
Money held with NS&I is 100% backed by the Treasury. NS&I has a duty to balance the needs of savers and taxpayers and help ensure the stability of the broader financial services sector.
Explaining the decision behind the rate cuts, it said that worsening rates in the cash savings market generally mean its own rates have risen in the competitor tables.
In the current financial year, NS&I is forecast to raise £11.5 billion in net financing against a £10 billion target, within a range of £8 billion to £12 billion.
"The net financing target helps to ensure the market remains competitive.
Jane Platt, chief executive of NS&I, said: "It is always a difficult decision to reduce rates, but downwards movements in interest rates across the cash savings market mean that our rates have risen in the competitor tables.
"NS&I aims to strike a balance between the needs of savers, taxpayers and the stability of the broader financial services sector, while raising the required level of net financing for the Treasury.
"These changes will allow us to manage demand in order to achieve our new net financing target, and deliver positive value to taxpayers.
"The majority of the new interest rates on offer are either at, or above, average market rates. We believe they present a fair offer to customers."
Seven years of rock bottom interest rates have given savers poor returns generally.
Danny Cox, a chartered financial planner at Hargreaves Lansdown, said: " This is another serious blow for savers who like the absolute security offered by NS&I, but now face even lower returns on their cash.
"Cuts are not a huge surprise given the market isn't now expecting an interest rate rise until 2017 at the earliest."
Rachel Springall, a spokeswoman for financial website Moneyfacts.co.uk, said: "It's clear to see that any provider that resides in the best buy tables will be inundated by savers looking for a decent return for their cash deposit and, sadly, in some cases the only way to cope with demand is to make a deal less attractive.
"Those looking for an easy access Isa will find a better return with Coventry Building Society and Post Office paying 1.40% and even better returns are available if savers decide to lock their money away for over a month, such as the 40 day notice Isa with Yorkshire and Clydesdale Bank paying 1.50%."
Ms Springall continued: "Anyone considering either a new savings deal or to switch their existing pot will need to be quick to snap up the best rates as the savings market continues to face cuts left right and centre.
"Consumers would be wise to consider interest paying current accounts as a place for the cash as they could earn up to 5% in some cases, such as with TSB and Nationwide."