8p a month!
That’s the interest you could earn on £10,000 after NS&I slashed its rates. So where CAN savers turn?
BRITAIN’S starved savers can no longer find sanctuary with National Savings & Investments after it unveiled a raft of savage rate cuts. Millions of people with NS&I nest eggs will be hit a month before Christmas.
The move will cost savers at least £816 million over the next year — with Premium Bond holders missing out on £354 million worth of prize money.
There are also fears that the heavy-handed rate chops will have a knock-on effect on the market — prompting already low rates to plunge even further.
The Treasury- backed bank which has 25 million savers, will pay as little as 0.01 pc from November 24.
The cuts, announced this week, are much deeper than those NS&I planned earlier in the year, but then cancelled in April at the height of the coronavirus pandemic as a measure to support savers.
But NS&I has now been forced to lower its rates because money is pouring in too quickly. Its attraction to savers is so great that the bank has already pulled in most of the amount it wanted to raise in the whole financial year.
It upped its target from £ 6 billion to £35 billion to support savers during lockdown when interest rates hit a record low.
In April to June it attracted a huge £14.5 billion, and money has been flowing in at the same rate in the second quarter. The Government faced either raising the amount it wanted to bring in, or cutting rates.
High street banks have continued to offer a pittance on savings, with most rates now at 0.01 pc. But NS&I’s attractive rates had led to rate rises as other providers tried to keep within shouting distance. But now there are fears these will fall, too. Sarah Coles, personal finance analyst at Hargreaves Lansdown, says: ‘We are likely to see the best rates disappear.’
James Blower, founder of website The Savings Guru, adds: ‘We could see rates with other providers fall from December or January. Savers should snap up top rates now.’
Kevin Mountford, co-founder of savings platform Raisin uK, says: ‘This is clearly bad news for savers. But as long as demand for borrowing remains, other providers will still need to raise funds from savers. Savers should search them out.’
POORER PENSIONERS
IN a particularly brutal blow, the 186,000 savers with NS&I’s Income Bonds could suffer a loss of hundreds of pounds every year.
They are hardest hit, with the rate cut to pitiful 0.01 pc from a current 1.15 pc.
These bonds are popular with pensioners as they automatically pay out interest at a given rate every month and give them easy access to their money.
The monthly interest they will soon receive on the variable rate account will drop to a miserly 8p on each £10,000, down from £9.58. over the whole year they will lose £114 in interest on each £10,000.
on top of this, hundreds of thousands of savers with fixed-rate Guaranteed Growth and Income Bonds and Fixed Rate Certificates, also popular with pensioners, will be offered as little as 0.1 pc when they renew their accounts for the same one, two, three or five-year term from Christmas Eve.
If they renew for a different term, the new low rate kicks in from November 24.
The one Year Guaranteed Growth Bond falls from 1.1 pc to 0.1 pc or £110 interest a year to just £10 on £10,000 while the twoyear Fixed Rate Savings Certificates go down from £115 to £10.
CHILDREN LOSE, TOO
CHILDREN have also not been spared the devastating cuts.
The rate on the NS&I Junior Isa, where adults can put money aside for children until they reach the age of 18, will be slashed to 1.5 pc from its current top rate of 3.25 pc. And in common with adults, the 807,000 children with Premium Bonds will see their chance of winning one of the monthly prizes drop from 24,500to-1 to 34,500-to-1 — the worst odds since September 2009.
In a devastating setback to all of its 21 million Premium Bond holders, the government bank will cut the number of prizes from the December draw by more than one million to just over 2.85 million. NS&I has cut the amount it will pay out from 1.4 pc to 1 pc of the £88.5 billion held in the bonds.
The two £1 million monthly jackpots are safe, but the number of second prizes of £ 100,000 will nearly halve from seven to four while the number of £50,000 prizes goes down from 14 to nine. The number of £25 prizes reduces to just over 2.79 million from more than 3.78 million
Savers looking for top easyaccess rates will also suffer. The 172,000 customers holding NS&I Direct Saver internet and telephone accounts will see their rate fall from 1 pc to 0.15 pc while its postal Investment Account rate drops from 0.8 pc to 0.01 pc.
This puts the state- owned provider on a par with the big banks — Barclays, NatWest, Lloyds, Royal Bank of Scotland, Halifax, Santander and HSBC — which pay barely above zero, at 0.01 pc, to loyal savers.
The NS&I Direct Isa rate drops to 0.1 pc from its current 0.9 pc.
Ian Ackerley, chief executive at NS&I, says: ‘Reducing interest rates is always a difficult decision.
Several of our products have become “best buys” following reductions in rates by other providers and we have experienced extremely high demand.
‘It is time for NS&I to return to a more normal competitive position.’
Top easy-access rates come from Principality BS which has just upped the rate on its Web Saver account for new savers to 0.8 pc. Ford Money has reintroduced its Flexible Saver at 0.75 pc while Atom Bank launched its Instant Saver at 0.75 pc this week.
Yorkshire BS pays a higher 0.95 pc on its new Internet Saver Plus 7, but you need £10,000 to earn this rate.
SAVERS are losing out on up to £ 7 billion in interest rewards by sticking with the big banks.
While smaller banks and building societies have been tentatively raising rates, big banks continue to pay virtually no interest at all.
Yet money has been pouring into the latter as savers have put more money aside for an uncertain future.
They now need a £50,000 deposit to find an account with a High Street bank that won’t see their savings eroded by inflation, despite it hitting a four-year low last week.
Earlier this month, banking trade body UK Finance revealed that the amount in easyaccess accounts soared by 6 pc in the second quarter of the year, the biggest increase since its records began ten years ago.
In the first six months of this year, savers piled in a huge £55.9 billion.
The big banks — including NatWest, Lloyds, Barclays, Royal Bank of Scotland, HSBC, Halifax and Santander — hold a total of £726 billion of our savings in easy-access accounts. They pay interest at a rate that is barely above zero, at 0.01 pc to loyal savers — or 10p a year on £1,000.
By switching to better deals at 0.75 pc to 1 pc,
Britain’s savers as a whole can boost their interest by up to £7 billion.
Savers with the big banks are also losing the spending power of their money, even though inflation is now running at its lowest level for nearly five years.
Meanwhile, the rise in the cost of living is increasing at just 0.2 pc, as measured by the Consumer Prices Index.
None of the big banks even get near to matching this low inflation rate — unless you have £50,000 in the NatWest Premium Account or open a new Digital Regular Saver. It cut the rate on its Premium account from 0.35 pc to 0.2 pc last month on sums between £50,000 and £1 million. On lesser amounts the rate is 0.01 pc.
The new Digital Saver, open only to those with a current account with the bank, pays 3 pc and gives easy access to your money. But you can only put in a maximum of £50 a month.
It is important you earn more than inflation on your money — if you don’t, it loses its value. With inflation at 0.2 pc, you need to earn £20 interest a year on each £10,000 of savings. At 0.01 pc, you earn just £1, so effectively lose £19 a year.
But data analyst Moneyfacts says there are 81 easy-access accounts on offer from other banks and building societies that beat the rate of inflation.
Rachel Springall, finance expert at Moneyfacts, says: ‘In my view, savers would be wise to look away from the High Street banks as they are paying next to nothing in interest. Challenger brands offer some of the best returns and are worth considering, even if they are not household names.’
Some big banks pay a marginally higher 0.05 pc, but the rate only lasts for a year.
For example, Santander’s eSaver Issue 18 pays 0.05 pc, but only for the first 12 months. After that, your money is transferred into its Everyday Saver account at 0.01 pc. In contrast, Principality BS has just upped the rate on its Web Saver account for new savers to 0.8 pc while Yorkshire BS Internet Plus Saver 7 pays 0.95 pc as long as you have £10,000 in the account. All give you easy access to your money with no withdrawal restrictions. Your money — up to £85,000 — is covered by the Financial Services Compensation Scheme, so you won’t lose out if the bank or building society runs into trouble.
Savers looking to put money aside each month can earn 1 pc on their future savings.
Virgin Money Regular E-Saver pays 1 pc and lets you make withdrawals any time, but limits you to saving £250 a month.
Unlike the new NatWest Digital Regular Saver, the account is open to all and not just its existing current account holders. The Virgin account rate is fixed for a year while NatWest reserves the right to cut the rate at any time.