NS&I abandons its savers to high inflation

This week, government-owned bank National Savers & Investments withdrew both its fixed-rate and its  and  index-linked tax-free savings certificates in a move sure to cause controversy.

In addition over 250,000 pensioners have had the interest rate on their NS&I Income Bonds slashed.

Decision to withdraw its certificates with no warning  leaves millions of NS&Is former savings account holders at the mercy of building societies and private banks which can sometimes pay as little as 0.008 per cent in interest.

This abandonment of consumers comes under a Tory-led government which, while in opposition, made it a point to highlight the plight of savers in a consistent manner. Any statements made by the party now in power rings hollow today with the millions of displaced savers who now face the prospect of attempting to beat an inflation rate of 5 per cent.

To complicate the issue, researchers have recently published findings that show that banks are widening the gap between the interest rates paid to savings accounts and ISAs versus the interest rates charged to borrowers.

On a fixed-rate mortgage with a three year term, a borrower will pay an interest rate 5.15 per cent, while banks will only pay savers on average just 3.52 per cent on their savings accounts. On afixed-rate of five years, borrowers routinely pay 5.56 per cent while savers only get 4.05 per cent in return -resulting in a gap of 1.51 percentage points.

NS&I has undoubtedly slammed its door in the faces of its investors, stated AWD Chase de Vere’s Patrick Connolly. The consultant for the independent financial adviser also stated that now, savers have no alternative but to either take on more risk or choose a lower interest rate on a return of their investment.

NS&I provides an inexpensive way for the government to raise funds directly from consumers, but building societies and banks can suffer if the government-owned bank pulls too much money into its coffers.

From April to June of 2010, savers invested £5.4bn into NS&I. In comparison to the same time period last year, which saw only £3.2bn in funds deposited, savers increased their investing by  69%. By withdrawing their offering of these accounts, NS&I is acting to protect failing banks that are offering extremely low interest rates.

NS&I’s chief executive Jane Platt, who earns nearly £50,000 more than the Prime Minister does yearly, says that sales of their products were much stronger than they had anticipated.  Platt continued, stating that while they had looked at other options, NS&T ultimately decided that the most fair way of proceeding was in going the route they chose.

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