In an already tight market, savers have been dealt another blow as the savings arm of the government, National Savings and Investments, announced cuts in their interest rates.
From May, millions of savers will see cuts of up to 0.25% per annum on the rates offered on Income Bonds, Direct ISAs and saver and investment accounts.
Premium Bonds will also be affected
NS&I will be cutting their monthly prize pay-outs by £5million and reducing the number of £100 and £50 prizes by about 33%. The chances of winning on the premium bonds still remain at 1 in 30,000 because they have increased the number of £25 prizes on offer to the 21 million bond holders.
The total number of tax-free prizes will fall in May to an estimated 2,219,493 from about 2,224,513 now. There will be more £25 prizes, but fewer of most of the higher value awards.
The total prize fund will drop from £69.5million to £63.8million over the same period, although the two jackpot prizes of £1million each month will remain.
National Savings and Investments (NS&I)
“The cuts in the interest paid by the NS&I are likely to come as a surprise to many savers who have suffered from years of low interest rates,” said Adrian Lowcock, a director at Architas, the investment arm of Axa.
“Combined with the return of inflation, which is expected to reach 2% this month, savers are being squeezed on both sides. The return of inflation combined with low rates means that cash savings are falling in value in real terms.”
The Direct Isa rate is being reduced from 1% to 0.75%.
Income bond holders will also have their rate cut from 1% to 0.75%.
Direct Saver accounts will be down from 0.8% to 0.7%.
NS&I blamed the cut in the Bank of England’s base rate from 0.5% to 0.25% in August and the reaction to the move across the savings market.
“We have taken the time to absorb the impact of the Bank of England base rate reduction and subsequent changes across the savings market,” said Steve Owen, acting chief executive of NS&I.
“The new rates 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.“
“We appreciate that savers will be disappointed, but we believe that the new rates present a fair offer to customers.”
According to a recent report, savers with NS&I have lost £100billion of investment returns over the past 10 years.