The government sponsored provider has dealt a blow to savers by cutting the interest rate on one of its most popular accounts.
It’s been a rough couple of years for savers. However one provider that has remained relatively dependable is the government-backed National Savings and Investments (NS&I).
But now NS&I have dealt a blow to around 20,000 existing savers by dropping the return on one of its most popular accounts.
Rates cut
The group has cut the interest rate on its Direct Saver account by one quarter of a percentage point from 1.75% to 1.50%.
NS&I – which is government sponsored – said that it took the action because deposits were set to overshoot the Treasury set financing limit of £4 billion. The price drop is intended to deter new investments in the account.
The group said the problem had been caused by a small number of customers depositing large sums of money since November, as well as other savers not taking cash out as expected.
However as the Direct Saver is easy-access, if you’re not happy with the new interest rate you can pull your money out swiftly and push it into a new account.
Switch out
So how does the newly priced 1.50% Direct Saver stack up against other easy-access accounts? Here’s a rundown of the current market leading deals…
| Account | Interest rate | Minimum | Access |
|
3.12% (includes 1.58% bonus for first year |
£1000 | Online | |
| Santander eSaver (Issue 4) | 3.10% (includes 12 month bonus of 2.6%) | £1 | Online |
| 2.9% (includes 12 month bonus of 2.36%) | £1 |
Online, telephone |
|
| Virgin E-Saver Easy Access | 2.85% | £1 | Online |
| 2.80% | £1000 |
Online, telephone, post |
Rate-wise the Direct Saver weighs in nowhere near the current market leader: Nationwide's MySave account. However, the Nationwide is arguably not a true instant access account as you'll pay an interest penalty if you make more than one withdrawal per year. What's more, the Nationwide account also comes with a 1.58% bonus. So after one year, your interest rate will fall to 1.54%.
It's a similar story with the Santander account: it comes with a 2.6% bonus which after one year will fall right down to 0.5%. Needless to say, if you do go for one of these two accounts, you should be looking to switch after the first 12 months has passed.
A major plus point of the NS&I Direct Saver account is that it has no bonus. Obviously as we have seen, this doesn’t mean the rate can’t fall. But it means that there's at least a chance that the rate won't fall any further.
However, if you are after a ‘clean rate’ account with no temporary bonus, you could still do better than NS&I. Virgin Money’s new E-Saver is being plugged by the company as a ‘gimmick-free’ account, precisely because it has no bonus. This deal pays out at 2.85% - giving you a far better return than the Direct Saver. Likewise, Scottish Widows is offering a 2.80% ‘clean’ rate – though you will have to deposit a minimum of £1,000 to get hold of this account.
So with bonus-free accounts like these around, what reason is there to still stay with NS&I?
Security
The key perk of saving with NS&I is that all deposits are 100% secure due to the providers’ Treasury backing. It’s this increased security which has in all likelihood fuelled the increase in deposits over the past few months.
Are you affected?
Do you have the Direct Saver account? Will this change affect you?
Let us know your thoughts using the comment box below.
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