NS&I slashes savings rates

National Savings & Investments (NS&I) has cut the interest rate on some of its fixed-rate bonds, leaving savers wondering if Premium Bonds could be next.

The rates on two-year, three-year and five-year British Savings Bonds were slashed from 4.60 per cent to 4.25 per cent, 4.35 per cent to 4 per cent, and 4.1 per cent to 3.9 per cent, respectively.

NS&I overshot its fundraising target earlier this year, so rate cuts were somewhat expected and more could be on the cards, including the Premium Bonds' prize fund rate.

British Savings Bonds pay below the best fixed-rate accounts available on the market. For example, the top two-year savings account has a 4.72 per cent rate and is offered by Ziraat Bank via Raisin UK, according to Moneyfacts.

Three-year British Savings Bonds were launched in April, following an announcement from former chancellor Jeremy Hunt in the Spring Budget. In August, NS&I added two-year and five-year options.

Mark Hicks, head of active savings at Hargreaves Lansdown, said that these cuts mirror the falls seen in the rest of the savings market. “It was always a matter of when these cuts were going to come, rather than if,” he said.

But he added: “The fact NS&I is cutting rates today demonstrates that it’s not desperately keen to fill its boots, so it isn’t going to be comfortable with paying over the odds. This doesn’t bode well for Premium Bond savers.”

Savers can choose between 'growth' bonds, where the interest earned is added to the bond every year, and 'income' bonds, which pay interest monthly in the saver’s bank account. NS&I accounts are always backed by the Treasury, but unlike Premium Bonds, any interest earned on the British Savings Bonds is taxable.