Savings rates cut by NS&I

Savings rates from the Government's NS&I scheme are being cut across a range of different accounts.

In a further blow to savers, National Savings and Investments (NS&I), has confirmed it is cutting the rates on a range of savings products.

These accounts are currently some of the best on offer, so it's more bad news for savers.

Rate changes

In a dire saving market, the rates currently on offer from NS&I are some of the best around.

Income Bonds

The Income Bonds currently pay 1.76% and will drop to 1.25%. They offer easy access, have no bonus and can be opened with £500.

Direct ISA

From September the Direct ISA will fall by 0.5% to 1.75%. Right now, paying 2.25%, it’s the second-highest easy-access ISA on offer. The account from NS&I can be opened with £1 and is easy access, so you get the tax-free benefits of saving into an ISA but also have access to your cash whenever you need it.

The top spot goes to Cheshire Building Society which pays out 2.30%. You can open this account with £1,000.

For a round up of the top ISAs, check out The best Cash ISAs.

Direct Saver

The third account to change is the Direct Saver, which will see a rate fall to 1.1%, from 1.5%. This account can be opened with £1 and again has the flexibility of instant access.

At the moment there are several accounts which beat this interest rate such as the E-Savings Plus from Nationwide which pays out 1.70% on balances starting at £1. But there is a catch with this one as you need to have a current account with the building society to be eligible.

Alternatively if you have £1,000 then the MySave Online Plus from Nationwide and the Derbyshire NetSaver both pay 1.70% too.

Read The best instant access savings accounts.

Why the change?

Existing customers with one of these NS&I accounts will be contacted at least 60 days before the interest rate changes take place.

As these accounts are backed by the Treasury, the investments are fully protected should anything go wrong, as opposed to the first £85,000 which is protected by the Financial Services Compensation Scheme.

These rates have proved popular recently as banks slash interest rates due to the Government’s Funding for Lending Scheme (FLS) which has given them cheap access to money and lessened the demand for customer deposits.

As savers are desperate for some income they have been flocking to the competitive NS&I accounts. But as the Government-backed savings scheme is not allowed to raise funds for the Treasury or make unfair use of its backing by building up too many deposits, it has decided the time is right to cut the rates on offer.

Alternative savings accounts

If you have an account with NS&I and the rate is about to plummet it's well worth looking around to see if you can find more interest elsewhere. Although the savings market has hit rock bottom recently, there are still some accounts which pay more interest, as shown above.

You could also try your hand at peer-to-peer investing. This has been growing in popularity recently as it provides much higher interest rates than you would get from the savings market.

The average returns are around 5% but your savings aren't quite as safe because these companies are not yet protected by the Financial Services Compensation Scheme (FSCS). You can find out more in our article What is peer-to-peer (P2P) lending?.

Several current accounts also pay interest on in-credit balances, such as the Santander 123 account where you can get up to 3% interest and the Nationwide account which pays 5%. Our article  - Get cashback with your current account - lists all the alternatives.

More on savings:

Where to earn most interest on your cash

NS&I: how does the safest savings account compare?

The top fixed rate savings bonds

The best notice savings accounts

The best regular savings accounts

The best instant access savings accounts