Laura Suter, head of personal finance at AJ Bell, comments on the announcement by NS&I that it is increasing rates across its products:
“The war is hotting up in the savings market, as rates start to rise and savers can finally start to get decent returns on their money. NS&I is latest to join the fray, significantly increasing the interest rates on a range of its products to boost their appeal – hot on the heels of its recent boost to the Premium Bond prize fund.
“The increases mean that NS&I savers will get £1.1bn more in interest from today – a significant boost that will be welcomed in the current cost of living crunch. Savers in the accounts that are still open to new customers will see a collective £373m boost to their interest from today, while those in the closed accounts will see a £742m boost.*
“It’s a real turnaround from two years ago, where NS&I slashed rates causing an exodus of savers from its products. The new rates, which come in immediately, mean that the Direct Saver, Direct ISA and Income Bonds are paying the same or more interest than before those rate cuts in September 2020. Among the accounts still open, only Junior ISAs have failed to return to their former glory, paying 3.25% interest in 2020 and just 2.2% interest after the rate hikes today.
“The increases don’t propel NS&I to the top of the tables but that’s never the aim with the Government-backed provider. However, the boost to the Direct Saver to 1.2% means it isn’t far off the current top easy-access rate of 1.5%. It’s a similar case with the Junior ISA, where NS&I’s new rate of 2.2% sits close to the top rate of 2.6%.
“It’s a different story when it comes to the Direct ISA, where NS&I will now pay 0.9% interest, which is significantly below the top rate of 1.5% from Newcastle Building Society. In that instance savers with £20,000 in their ISA will be sacrificing £120 of interest a year for the privilege of being with NS&I.
“Savers like the security that NS&I offers, with it being Government-backed and offering total protection of savers money. However, with FSCS protection now covering up to £85,000 per person per bank or building society, savers would be wise to move their money elsewhere for higher rates. The real benefit of NS&I is for those with larger savings pots who would struggle to split it into £85,000 pots with different banks. For these wealthy savers the NS&I guarantees coupled with the high limits on many accounts, up to £1m, make them invaluable.”
*Rates based on total assets in accounts from latest NS&I report and accounts. Rate increase for closed accounts are averaged across different fixed terms, as NS&I doesn’t provide an AUM breakdown for each product term.
