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NS&I ups savings rates for second time in two months

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State bank NS&I ups savings rates for second time in two months, in a bid to halt customer exodus and avoid falling drastically short of fundraising target

  • NS&I is upping rates on its Income Bonds, Direct Saver and Direct Isa to 0.35%
  • It is hoping the improved rates will enable it to hit its £6billion fundraising target
  • Half way through the financial year, it had only raised 10% of that  
  • But the new rates are still a long way short of the best deals on the market  
  • Experts say they are unlikely to win over many savers 


State-owned savings bank NS&I is increasing the interest rates on some of its savings accounts for the second time in two months in a bid to halt an exodus of customers. 

Last month, NS&I upped the rate on its Direct Saver and Income Bonds from 0.01 per cent to 0.15 per cent and on its Direct Isa from 0.01 to 0.10 per cent.

As of 29 December, rates on the first two deals will rise once more from 0.15 per cent to 0.35 per cent, whilst the interest rate on its Direct Isa will increase from 0.10 per cent to 0.35 per cent. 

NS&I is on track to fall short of its annual fundraising target this financial year and is upping its rates in a bid to attract more customers.

NS&I is on track to fall short of its annual fundraising target this financial year and is upping its rates in a bid to attract more customers.

NS&I will be hoping its improved rates will help it to hit its £6billion target for this financial year.

However, that is a tall order. Between 1 April and 30 September this year, NS&I savers deposited a net £600million, 10 per cent of its target. 

It was also far below the £38.3 billion deposited during the same period last year.

The £22.8billion in gross outflows record by NS&I between April and September this year suggest that customers are withdrawing their cash in droves.    

James Blower, founder of the Savings Guru, is doubtful that the move will have the desired impact.

‘It’s no surprise to see NS&I announcing another interest rate increase,’ says Blower.

‘It’s clear from their quarterly updates that, although Premium Bonds remain popular, billions continue to flow out of NS&I’s other accounts.

‘Last month’s increase to 0.15 per cent was an effort to stem the exodus but it was never going to be enough to do this.

‘I don’t think these increases will be enough to stem the outflow which is good news for Premium Bonds holders, as this reduces the likelihood they will see rate cuts, and is likely to mean that NS&I will have to improve rates further to keep on track for its Net Financing Target.’

Will some savers be enticed by the new offering?

High Street Banks easy access interest
Bank  
Barclays 0.01% 
Halifax  0.01% 
Lloyds  0.01% 
HSBC  0.01% 
Nationwide BS 0.01% 
NatWest  0.01% 
Santander   0.01% 
TSB  0.02% 
Metro  0.05% 
Source: MoneyComms   

NS&I is clearly hopeful of attracting savers to its Treasury-backed savings deals, particularly given the fact that many savers are earning as little as 0.01 per cent with the big banks.

However, whilst it may hope to steal savers away from the big banks, NS&I’s new and improved rates remain far short of the best savings deals on the market.

The best easy-access deal currently pays 0.71 per cent; the best one-year fixed rate deal pays 1.41 per cent; and the best easy-access cash Isa pays 0.67 per cent.

Andrew Hagger, founder of MoneyComms, believes NS&I’s rate increase should act as a wake up call to savers to abandon high street banks paying next to nothing and move elsewhere — just not necessarily to NS&I.

Hagger says: ‘NS&I’s Direct Saver is a much better deal than those offered by the high street banks, however, the current easy access best buys are still a more rewarding home for your “rainy day” or emergency cash balance — paying double the NS&I new rate.

‘I’d recommend that savers don’t wait around in the hope that their high street bank might increase their pittance of a savings rate, as they may well be disappointed.

‘Instead, use this as a wake up call to up sticks and find a far better easy access savings deal paying up to seventy times as much.’

BEST FIXED-RATE ACCOUNTS 
Type of account (min investment)                   0% tax 20% tax 40% tax
ONE YEAR                         
Gatehouse Bank (£1,000+) (3)                    1.41 1.13 0.85
Zopa Bank (£1,000+)                    1.37 1.10 0.82
Investec (£5,000)                    1.36 1.09 0.82
TWO YEARS                  
Zopa Bank (£1,000)                    1.61 1.29 0.97
Gatehouse Bank (£1,000+) (3)                    1.60 1.28 0.96 
Paragon Bank (£1,000+)                    1.60 1.28 0.96

Aside from the rates, NS&I may be hoping that its reputation and the fact that its customers savings are fully backed by the Treasury will be sufficient to draw people in.

However, there are also those that feel NS&I’s reputation has been severely damaged by its brutal rate cut last November. 

This saw its Direct Saver go from 1 per cent to 0.15 per cent, its Income Bonds fall from 1.15 to 0.01 per cent, and its Direct Isa fall from 0.9 to 0.1 per cent

Blower adds: ‘Many savers feel bitterly let down by being enticed in and then subject to abject service and savage rate cuts in November 2020.

‘NS&I has done long-term damage to its reputation by the whole handling of the situation – from the decision to cancel proposed cuts for May 2020, to the severity of the cuts it announced in September 2020 and implemented in November 2020 – and its subsequent inability to resource appropriately for the inevitable increase in customer activity that would create.

‘What’s most concerning is it all seemed to be a shock to the management team, whereas anyone who works in the savings industry could have told them exactly what the consequences were going to be.

‘Their service also continues to be dreadful, reflected in their awful ratings and feedback on Trustpilot.

‘My advice to savers is if you haven’t already, then move your money out as there’s better rates and service elsewhere.’

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