WHAT IS THE POINT OF SAVING?

Blow for millions as National Savings slashes its interest rates and Premium Bond prizes

SAVERS were dealt a fresh blow yesterday as National Savings slashed its rates and cut back on prizes.

The move by National Savings and Investments (NS&I), which has 25 million customers, will raise questions over the value of putting money away.

NS& I has made its cuts in response to the decimation of rates by banks and building societies.

But campaigners argue that, being backed by the Government, NS&I is sending an unhelpful signal to the savings market as a whole.

They warn that people are being deterred from prudently saving for life’s unexpected events because of the paltry returns on offer. NS&I

said it was reducing rates by as much as 0.45 percentage points across more than a dozen savings account deals and bonds.

It said the prize pot for Premium Bonds was also being cut, with the odds of winning a prize also being reduced. It is estimated the cuts, to take effect in May, will cost savers at least £238million a year.

The move will intensify pressure on Chancellor Rishi Sunak to offer some help for savers in the Budget.

Consumer campaigner Baroness Altmann said: ‘For ordinary savers it is so disappointing not to have anywhere they can get a reasonable return and keep their money safe.

‘We are losing the culture of savings which is so important in the long term to the economy.’

Anna Bowes, director of advice website Savings Champion, added: ‘These are hefty cuts from NS&I. Savers will be disgusted.’ NS&I aims to attract savers to help fund public- sector spending. All savings are guaranteed by the Government, compared with up to just £85,000 in high street accounts, making it increasingly popular since the 2008 financial crisis.

But it has to strike a balance between attractive rates and not undermining banks. NS&I is to cut rates on its Direct Saver account from 1 per cent to 0.7 per cent, and on its Investment Account from 0.8 per cent to 0.6 per cent.

The rate on Income Bonds, which are popular with pensioners as they pay interest each month, will suffer the most dramatic drop – from 1.15 per cent to 0.7 per cent. It means someone with £50,000 will lose out on £225 a year.

Various bond rates are also being axed by a minimum of 0.15 percentage points. Around 21 million NS&I savers have Premium Bonds, which pay out in monthly prize draws – with two top prizes of £1million. But yesterday’s cuts will mean 173,718 of the 3.47million smaller prizes will disappear.

It will slash the odds of winning a prize from one in 24,500 to one in 26,000.

Last night, NS&I blamed the cuts on low rates from banks and the poor performance of government bonds.

Chief executive Ian Ackerley said: ‘We need to ensure our interest rates are set at an appropriate position against those of our competitors.’

Interest rates have been in freefall for months, with the average savings rate today just 0.56 per cent, compared with 4.16 per cent in 2008.

Rates on cash Isas have also sunk to their lowest in almost three years, with some paying as little as 0.1 per cent.

FOR generations, the intrinsic virtue of saving has been beyond question, especially among Conservatives. It encourages selfreliance, minimises debt and teaches all of us the value of money.

Until recently the Government agreed, offering competitive interest rates through National Savings and Investments schemes – from traditional savings accounts to premium bonds. The benefit to the taxpayer was obvious. Those who saved through their working lives were less likely to fall back on benefits in old age.

Yesterday that philosophy was turned on its head as NS&I rates were slashed. It was tantamount to saying there is no point in saving any more. The age-old Tory policy of incentivising thrift was dashed at a stroke.

We have seen a decade of plummeting rates for savers, led by greedy banks interested only in maximising profits.

Instead of trying to reverse that race to the bottom, the Government is joining it.

So here is an early chance for new Chancellor Rishi Sunak to make his mark. Overturning this cut would be a hugely popular and powerful statement. It would demonstrate that at least someone in Cabinet still believes in Conservative values.