NS&I slashes £1m savings limit: here are the alternatives

NS&I has announced a drastic cut in the maximum amount savers can put into its popular one and three-year guaranteed growth and guaranteed income bonds.

The accounts have proved to be incredibly popular with savers in the past, partly thanks to NS&I’s government-backed guarantee, which meant you could safely save up to £1m with 100pc capital protection.

Now the maximum deposit in the guaranteed bonds has been cut to just £10,000. However, experts said customers could find both protection and better deals for large sums elsewhere, criticising NS&I accounts for their low rates and unpredictable availability.

NS&I said it made the changes in order to meet its “net financing target” for 2018-19. To avoid overshooting this target, which the Government sets each year, the savings provider decided to reduce the limits on some accounts and keep interest rates the same.

Giles Hutson, director of Insignis Cash Solutions, a cash management specialist, said: “When NS&I reaches its annual funding targets, wham – the shutters come down, and they come down either in terms of interest rates or on the amount you can save.”

But there are other ways to lock away £1m with the same protection and at a better rate of interest. Mr Hutson advised spreading your cash over a number of accounts offering better rates in smaller lump sums.

The Financial Services Compensation Scheme (FSCS) protects up to £85,000 of your savings per account, and couples with joint accounts are protected up to £170,000.

A couple who divide £1m across six accounts will have FSCS protection and access to higher rates than NS&I’s.

Mr Hutson advised putting around £500,000 into accounts with “challenger” banks, which currently offer the highest rates, with the rest in well-known high street banks. To be fully protected, individuals without the married couples’ allowance will have to split their £1m over 12 accounts. The problem with this, Mr Hutson said, is that the amount of interest you earn is likely to go down as accounts ranked below the top six “best buys” tend to offer less competitive rates of interest.

However, Sarah Coles, an analyst at Hargreaves Lansdown, the investment firm, said: “Even if they have £1m and have to spread it over the 12 most competitive accounts to ensure their money is protected by the FSCS, savers will still get a better rate on even the least competitive of the 12 than they would from NS&I at the moment.”

You can still combine 100pc protection and better interest rates, finds Harry Brennan

Separate your cash into several smaller pots to grow it most effectively

‘I lost my Equitable Life pension’ Unwrapping the gifting allowance