NS&I to boost its cash ISA rates in wake of FLS

Business banking news review: week ending 31 Jan 2013

While the Funding for Lending scheme has wreaked havoc on the interest rates offered to savers, National Savings & Investments has said it will boost its ISAs.

FLS, which was instituted in August of last year in an attempt to stimulate the economy by making it easier to take out mortgages and business loans, has been largely successful in dropping the cost of these lending products. However, the knock-on effect has been a reduction in the rates of return that that banks and building societies offer on their savings products have been scaled back, as financial service providers no longer need high levels of working capital to finance their lending.

However, NS&I, the government-backed savings provider, has announced that it will be counteracting he dropoff by transferring more than £450 million in ISA deposits to a new Direct ISA offering this coming May. The new accounts will carry a 2.25 per cent rate of return, which is far and above its current 0.50 per cent offering.

NS&I does not offer ISAs to new customers, as existing customers jumped on the 2009 offering from Government’s savings arm that has long since lost its promotional interest rate.  This new rate adjustment brings the NS&I ISA offerings to more competitive levels, and unlike high street savings providers that only guarantee coverage for the initial £85,000 in consumer deposits under the Financial Services Compensation Scheme, NS&I guarantees 100 per cent of their deposits – an excellent benefit reaped by its connection to the Treasury.

The rate increase brings NS&I into the top four instant access ISAs currently active in the existing marketplace, falling just behind Metro Bank, First Trust Bank, and Cheshire Building Society. NS&I will be writing its customers in order to inform them of the rate increases before going forward with the automatic transfers this coming May.

While the new interest rate still remains lower than the current inflation rate, the change is a welcome one for any savings customers that have seen their returns drop thanks to the FLS.

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