NEW BLOW FOR 21M SAVERS
National Savings interest rates are cut — and so is your chance of winning a premium bond prize
TREASURY officials ‘punished’ 21million savers yesterday by slashing their interest rates. Payouts on popular government-backed accounts and premium bonds are being cut by up to 0.25 percentage points.
The decision by bosses at National Savings & Investments was signed off by Simon Kirby, the Economic Secretary to the Treasury.
A former minister accused the Government of kicking savers in the teeth. A senior MP said Theresa May should block the move because she had pledged to help those battered by record low interest rates.
Four in ten adults have cash tucked away with NS&I, which resisted acting on the Bank of England’s 0.25 per cent rate cut last August.
But in May the return on its Direct Isa and monthly income bonds will fall from 1 per cent to 0.75 per cent. The payout on its Direct Saver account will drop from 0.8 per cent to 0.7 per cent – half the headline rate of inflation.
The estimated number of £100,000 premium bond prizes will fall from three a month to two. There will also be two fewer £25,000 payouts and 5,000 fewer prizes overall. This cuts the effective return for around 21million bond holders from 1.25 per cent to 1.15 per cent.
Ros Altmann, a former pensions minister, said: ‘On the one hand you have a government saying it wants to champion savers, yet on the other it keeps cutting rates they earn.
‘Savers are being punished time and time again
as rates keep falling. The message the Government is sending by these actions rather than words is don’t bother to save – it’s not worthwhile. This is a bad message to send out and pretty short sighted.
‘ People usually save with NS&I for a rainy day. What happens when that rainy day arrives and people have got nothing?’
In November’s autumn statement, Chancellor Philip Hammond had promised to ‘back savers’ with the creation of a market-leading bond.
And Mrs May warned that rock bottom rates and quantitative easing had ‘ bad side effects’, including making savers poorer, following August’s base rate cut to pep up the economy following the Brexit vote. The Prime Minister added: ‘A change has got to come. And we are going to deliver it.’
But Frank Field, the veteran MP who chairs the Commons work and pensions committee, said she should veto the cuts by NS&I, which is 100 per cent owned by the Treasury. He added: ‘There does seem to be a growing gap between the Prime Minister’s rhetoric and the way savers are treated.’
NS&I does not offer the best savings rates because this would be seen as unfair on its privately- owned rivals. But because it had delayed cutting rates it had become one of the best options for savers.
Rachel Springall, of the website Moneyfacts, said: ‘Savers are really running out of options as NS&I was one of the last refuges.
‘This will be a huge blow for those who rely on NS&I to keep their money safe, and to offer a reasonable return. Now either they will have to accept a worse rate or move their cash to a firm they might not be so familiar with.’
The best easy access account right now is RCI Bank, paying 1.1 per cent, according to Money- facts. The top-paying easy access Isa is offered by Virgin Money, which pays 1.01 per cent.
The average easy access savings account pays just 0.37 per cent and the average easy access Isa rate is 0.65 per cent.
In August 2007, before the financial crisis, the equivalent figures were 4.25 per cent and 5.85 per cent.
Steve Owen, acting chief executive of NS&I, said he recognised that savers would be ‘disappointed’ but insisted the new rates ‘presented a fair offer to customers’.
They ‘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’.
Danny Cox, of pensions and investment firm Hargreaves Lansdown, said NS&I accounts will remain popular for their ‘cast iron’ security. But he described the cuts as another devastating blow for millions.
A Treasury spokesman said: ‘This Government has taken decisive action to help savers including establishing the lifetime ISA, launching the autoenrolment scheme, and introducing the personal savings allowance. At the autumn statement the Chancellor also announced further support in the form of a new, market-leading three-year savings bond.’
Savers are also starting to be hit by inflation, which hit 1.6 per cent in December, the highest in more than two years. Just 44 of 669 savings accounts can beat or match it, according to Moneyfacts.
The majority are fixed-rate bonds with terms of at least three years.
‘Running out of options’
DEPRESSING FACT ( 1): In its pre- Budget number- crunching, the Institute for Fiscal Studies finds that on current plans the tax burden is set to rise to its highest level in 30 years, threatening growth, while more spending cuts will be needed until well into the next decade.
After almost seven years of so- called austerity Budgets, this hardly says much, does it, for George Osborne’s stewardship of the economy? DEPRESSING (AND MAD) FACT (2): In the same report, the IFS finds spending on adult care has fallen more than 6 per cent since 2010 – while the overseas aid budget has risen by 40 per cent. How much longer can this lunacy go on? INTEREST rates at rock-bottom for eight years... buy-to-let investors hammered by tax raids... Now even premium bond prizes are to be hit, with nominal returns for 21million savers slashed from 1.25 per cent to an even more risible 1.15 per cent. Are ministers determined to kill off every incentive to save – and condemn the whole country to an impoverished old age?