National Savings and Investments (NS&I), the government-backed savings facility, is heaping misery on over half a million savers by slashing interest rates on its three leading accounts by up to half a percentage point.
From 12 September 2013, the tax-free Direct ISA will fall from 2.25% to 1.75%. The Direct Saver account will be reduced from 1.5% to just 1.1% (0.88% net), and the return on income bonds will tumble from 1.75% to 1.25% (1% net).
NS&I had received plaudits from consumer groups after automatically transferring a host of old ISAs into the new 2.25% Direct ISA (read more). But it now finds itself on the defensive after its latest announcement.
NS&I attributed the decision to other banks and building societies having driven down the average savings rates, which has put the Treasury-backed institution under strain.
"Rates across the savings market have fallen over recent months," noted Jane Platt, NS&I’s chief executive (pictured, right).
“To ensure we continue to strike a balance between the needs of our savers, taxpayers and the stability of the broader financial sector, we have taken the difficult decision to reduce the rates on our Direct ISA, Direct Saver and income bonds accounts."
NS&I has proven popular with large deposit holders since the inception of the financial crisis because unlike regular banks, where deposits are protected to a maximum of £85,000 through the Financial Services Compensation Scheme, all NS&I deposits are guaranteed by the Treasury.
(Find out more about savings and security.)
But the accounts are clearly not immune to a descending market, and leave savers with increasingly fewer options as they attempt to find any substantial returns.
Keith McDonald
Which4U Editor
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