SAVERS LEFT TO FEEL THE PINCH

20million facing lower rates from National Savings

SAVERS were left short-changed yesterday when the Chancellor pulled the purse strings even tighter at National Savings and Investments.

Rishi Sunak ordered the agency to take in 40 per cent less cash than last year – meaning rates for more than 20million customers are likely to fall further. This is because it will not now be trying to lure in business with attractive rates.

The blow came hours after the Bank of England slashed the base rate to 0.25 per cent, paving the way for banks to offer record low rates. Savers have endured paltry rewards ever since the 2008 financial crisis sent interest rates tumbling. Last month NS&I announced it was reducing payouts – including for the 21million customers with Premium Bonds.

But the Budget brought more bad news as the Treasury announced it would cut the amount of money the bank can bring in, from £10.1billion to £6billion. Last month NS&I announced it would cut rates on 14 savings products. The prize rate for those with Premium Bonds was cut from the equivalent of 1.4 per cent to 1.3 per cent. It means savers are now less likely to win a cash prize in the monthly draws that include two £1million jackpots.

Experts last night warned more prizes are likely to be taken off the table after the Budget, while rates would fall on other NS&I accounts. Rachel Springall, of financial data firm Moneyfacts, said: ‘NS&I is not likely to offer good returns to savers following the drop in the amount of money it wants to bring in.’

Anna Bowes, of advice site Savings Champion, said: ‘This is devastating news for savers who have lived with record low savings rates for over a decade. They have already seen rates cuts accelerate over the last couple of months. Things will get worse.’

The only hint of good news for savers yesterday was a hike in the amount of money parents can put away in to a Junior Isa every year.

From next month, the limit for tax free savings will double from the current £4,368 to £9,000. The £20,000 cap for ordinary Isas is to stay in place. Becky O’Connor, personal finance specialist at mutual Royal London, said: ‘Most people save far less into them than the maximum. So raising the threshold is a bit of an empty gesture for all but the wealthiest Isa savers, who are the most likely to reach this maximum amount.’

The change means parents could build up a pot of £240,000 over 18 years if they put in the maximum and it grows by 4 per cent every year.

Neil Lovatt, from Scottish Friendly, said: ‘This increase will only serve the rich, wealthy and well advised and not the millions of parents and grandparents who want to save and invest for their children.’

Martin Lewis of moneysavingexpert.com said those ‘who’ve worked hard to build up a nest egg will be holding their heads in their hands’ at news of the Bank’s base rate cut.

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.

‘Holding heads in their hands’