Savings alert: NS&I hikes rates on Junior and Direct Cash ISAs

Rates on two NS&I ISAs have increased by up to 0.75% in a welcome boost for savers. That said, those who want the best rates will still be better off elsewhere.

National Savings & Investments (NS&I) has hiked the rates a couple of its tax-free savings accounts.

The NS&I Junior ISA now pays a rate of 3.25% (up from 2.5% before), making it one of the most generous in the market.

Its Direct ISA has increased by a more moderate 0.15%, rising from 0.75% to 0.9%.

For context, that change comes just six months after the NS&I cut the same product from 1% to 0.75%, so effectively Direct ISA savers are still worse off than they were last summer.

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Why one's rising more than the other

In case you're wondering why one ISA has increased by an impressive 0.75% while the other goes up by just a fifth of that, NS&I explains in its press release that the increase to the Junior ISA "reflects NS&I’s aim of attracting younger customers and inspiring a stronger savings culture".

How does it compare to the best rates?

While any increase to savings rates is obviously welcome news, savers wanting the best rates should consider moving their cash elsewhere.

As the table below highlights, the best Junior ISA can beat the NS&I equivalent by 0.4% while the best access ISA pays 0.55% more than the Direct ISA.

If you’d like to compare more rates, head this way to compare savings, ISAs and peer-to-peer investments (capital at risk on P2P products).

Best access Cash ISA

Best Junior Cash ISA

Is my money as safe?

While the above highlights how you can get a better rate elsewhere, many people flock to NS&I because of the additional security as its products are 100% backed by the Treasury.

However, given that financial institutions protect up to £85,000 under the Financial Services Compensation Scheme, the vast majority of savers will find their money is every bit as safe elsewhere.

Just remember that £85,000 safety is applied per banking licence rather than brand, so if you do have a lot of savings make sure they are held under completely separate banks: to learn more read: who owns my bank or building society?

Why are NS&I rates comparatively poor?

We are sometimes critical of NS&I, but this is just because our main aim is to point out where you can get the best possible rate on your money. And that quite simply isn't the case with NS&I.

However, we should point out that it doesn't operate with the same remit as traditional banks and savings institutions.

As you can read in more detail here, NS&I has to tread a fine line between providing attractive accounts that bring in money that the Government can borrow and not dominating the banking market.

As Ian Ackerley, NS&I chief executive, puts it: “NS&I’s operating framework means we have a duty to balance the interests of our savers, the taxpayer and broader market stability when setting our interest rates.”

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