£60million National Savings TRIPLE WHAMMY
It was the safe haven for nest eggs. But now it’s cut rates on three accounts — leaving 1.5m savers facing a ...
THE nation’s bank has piled yet more misery on loyal savers already wounded by a decade of paltry rates.
National Savings and Investments (NS&I) this week slashed rates on three popular accounts and took its most rewarding bonds off the market.
The triple blow will cost savers nearly £60 million in interest rewards.
Money Mail is now calling for an end to the savings crisis and will name and shame any banks mistreating their savers.
NS&I, the Government-backed savings arm, has long been the safe haven for our nest eggs, with 25 million of us trusting the bank with our money.
But now, nearly 1.5 million people could miss out after it announced a 0.25 percentage point cut to rates on some of its popular accounts.
Rates have been slashed on new Guaranteed Growth and Guaranteed Income Bonds, as well as on fixed Interest Savings certificates.
The savings bank has also pulled from sale its one-year and three-year fixed-rate bond deals.
Experts say the ‘devastating’ move is ‘bitterly disappointing’ at a time when NS&I should be encouraging the country to save.
It has increasingly cut back on its offerings. Recently, the Treasurybacked bank has:
SlaSHEd its interest rates and switched some savers to a less rewarding inflation index.
cloSEd off get-out clauses in fixed-bond deals.
SHRuNk the savings limit from £1 million to £10,000.
NS&I’s Guaranteed Growth and Guaranteed Income Bonds, which have come under the knife, are the second-most popular account with NS&I after Premium Bonds.
around 776,000 savers have £20.6 billion in them.
a further 680,000 have more than £3 billion in fixed Interest Savings certificates. following Monday’s announcement, the State savings arm now offers no fixed-rate accounts for new savers looking for the security of knowing exactly how much interest they will earn.
While the bonds are no longer on sale to new savers, those who already have them can roll them over into a new one. But even those rolling over their bonds can earn only 1.25pc on the oneyear Guaranteed Growth Bond, the lowest rate since 0.95 pc in april 2017.
Yet, back then, the general level of interest rates stood at 0.25pc against 0.75 pc today.
NS&I blames its latest cuts on sluggish rates elsewhere, saying competitor rates have been falling. When setting rates, the provider has a duty to balance the needs of savers and taxpayers, and takes into account what is happening in the rest of the market.
Rachel Springall, finance expert at Moneyfacts, says: ‘NS&I has to
adjust its rates when market rates fall. It’s devastating for savers, but it could be forced to cut them again if the general level of rates carries on downwards.’
Justin Modray, of Candid Financial Advice, adds: ‘It’s bitterly disappointing to see NS&I effectively giving up on fixed-interest savings accounts, by pulling remaining products from sale and slashing the rate offered on existing accounts when rolling over at maturity.
‘Its product cupboard is looking increasingly bare, with little to tempt savers in the current climate.’
The Treasury has told NS&I it can raise only around £11billion this financial year. If its bonds are too attractive, then it could raise too much.
NS&I has already made its bonds less appealing this year. Savers can no longer cash in bonds renewed after May 1 if they need to. And, in April last year, it cut the amount savers can put in, from a £1 million limit to just £10,000.
But former pensions minister Steve Webb, now director of policy at Royal London, says: ‘The role of National Savings should be about more than just raising money for the Government.
‘If we are ever to create a savings culture in the UK, National Savings has a key part to play, especially for savers who are uncomfortable taking investment risk.
‘Every time it cuts rates to the floor or withdraws products, it makes it harder for people to save.
‘It is time the Government gave National Savings a broader role to promote savings and didn’t just use it as a “tap” to switch off and on when the Treasury is short of money.’ Another former pensions minister, Baroness Ros Altmann adds: ‘NS&I is the favoured option if you want somewhere safe to put your money. But it’s getting harder and harder for savers to find somewhere safe.
‘It’s quite frightening — will we see more people keeping their money as cash?
‘NS&I has a duty to make saving accounts available to all and to make sure that, if someone has savings with it, then they can roll over their savings into a new account when it matures.’
NS&I chief executive since March 2017, Ian Ackerley, who last year earned £270,000 including pension and performance benefits, claims it is developing its products to encourage a stronger savings culture. But, earlier this year, the savings arm dumbed down its popular Index-linked savings certificates. Around 487,000 savers with £19.6billion in these will see their return drop when they renew their investment.
Index-linked savings certificates are popular as your cash is protected against rising prices and the interest is automatically tax-free. They pay inflation plus 0.01 percentage points for two, three or five years.
The certificates were withdrawn from sale in 2010, but existing savers can roll over their cash into new accounts.
Since May 1, the interest paid has been linked to inflation as measured by the Consumer Prices Index announced each month, which is currently 2.1 pc.
But, up until the end of April, the rate followed the higher Retail Prices Index, running at 2.8 pc. That means savers holding £10,000 worth of certificates now earn £210 interest instead of £280 — a 25 pc fall.
After the rise in base rate last year, NS&I passed on just 0.05 percentage points to its savers, raising the rate to 1pc on its variable-rate Direct Saver. Income bond holders saw just 0.15 points, with the rate up at 1.15 pc.
The latest cuts to guaranteed bonds come even though NS&I passed on none of the rise after the base rate hike last year.
The rate on its one-year Guaranteed Growth Bond falls from 1.5pc to 1.25pc. The three-year bond goes down from 1.95 pc to 1.7 pc. The equivalent-term Guaranteed Income Bonds drop to 1.2pc and 1.65 pc respectively.
NS&I also offers a two-year Guaranteed Growth Bond with a new rate of 1.45pc and a fiveyear version at 2pc, for those looking to renew their bonds. The income versions pay 1.4pc and 1.95 pc respectively.
Its Fixed Interest Savings Certificates are down by 0.25 percentage points, to 1.3 pc for two years and 1.9 pc for five.
Those with a Guaranteed Bond or Fixed Interest Savings Certificate that comes to the end of its term on or before October 5, 2019, and automatically renews into a new deal of the same length term, will receive the old, higher rate.
But customers who renew into a new issue and choose a term of a different length to the one they had previously will receive the new, reduced rates.
All bonds and certificates maturing after October will be offered only the lower rates.
When you put money into NS&I, you are lending money to the Government. Millions of us choose the state-backed lender because it promises all your money is protected; in contrast, ordinary banks can guarantee only up to £85,000 (or £170,000 on joint accounts). Savers like the security and are therefore happy to put up with slightly lower rates. But, for those with less, there are much better rates on offer from new banks. Laura Suter, personal finance analyst at investment platform AJ Bell, says: ‘Customers could switch to better-paying accounts from other providers, however many are drawn to the security of NS&I. ‘The real difficulty for savers is there’s no clear signal on which way the Bank of England is going to move on interest rates — it hinges on the outcome of Brexit and the economy’s reaction to that. ‘A good route if you can spare a bit of time is to use the various high-interest current accounts, regular savers and top easyaccess accounts to boost their returns. But this requires some juggling of different accounts.’
Patrick Connolly, chartered financial planner at advisers Chase de Vere, says: ‘It is a difficult time for savers as the outlook is changing almost hour by hour because of the political landscape. Look for shorter-period bonds, as you are now not rewarded for tying up your money for longer.’
NS&I retail director Jill Waters says: ‘It is important that NS&I continues to balance the needs of our savers with taxpayers and the stability of the broader financial services sector.
‘Guaranteed Growth and Guaranteed Income Bonds have been available to new customers for over 20 months at competitive interest rates.
‘For those customers with existing investments, the new rates still present a fair deal alongside the benefit of our unique 100 per cent HM Treasury guarantee.’