The savings accounts arm of the Government recently made the controversial decision to cut its Direct Saver interest rate just as countless consumers prepared to switch over to it this year.
The year to date net financing total for National Savings & Investments has reached a sum of £4.8 billion, which exceeds its initial target by £2.8 billion. This has led the NS&I to reduce the interest rate on its savings product to 1.5 per cent, down from 1.75 per cent, in order to curb the risk of over-subscription.
NS&I chief executive, Jane Platt, remarked that the move can be partially attributed to large sums of cash being deposited by a relative small number of savers. While deposits at conventional personal and business bank account providers are only required to compensate savers to a maximum of £85,000 in the event that the banking provider failed, NS&I deposits are completely guaranteed by the Treasury.
The decision to reduce the Direct Saver rate was a very difficult one, Ms Platt said. However, NS&I had no choice but to take the steps in order to control the level of deposits over the next few months, the chief executive added.
Savers will find this of little consolation, as they have been enduring historic low interest rates on many different retail savings products. An additional blow to many savers, particularly those residing in rural locations, was NS&I’s break from the Post Office in 2011.
While the NS&I has yet to announce a new Investment Account rate, its account restructuring will give all of its 2.6 million customers the chance to transition over to the Direct Saver.