NS&I slashes rate on its Direct Saver

The popular NS&I has controversially cut the rate on its Direct Saver account as millions prepare to switch over to it in 2012.

NS&I’s year-to-date net financing total has reached £4.8 billion, well above the £2 billion it sought to attract. This has led the institution to cut its rate of return from 1.75% to 1.5% (1.2% net) because the account has been attracting too great an inflow.

Jane Platt (pictured), the chief executive at NS&I, attributed the move in part to a small number of savers depositing large amounts. While conventional bank deposits are subject to a maximum of £85,000 compensation per person in the event of a banking failure, all money invested with NS&I is completely safe because of its affiliation with the Treasury.

"Reducing the rate on Direct Saver was a very difficult decision," she said. "We have to take action to moderate the level of deposits into this account over the coming months."

This will be of little consolation to savers, however, who are having to endure persistently low rates on instant access bank accounts and ISAs. NS&I’s break from the Post Office last year was an additional blow to many savers, especially in remote areas.

NS&I’s account restructuring will see all 2.6 million account holders offered the chance to switch to the Direct Saver, though it has not yet announced a new Investment Account rate.

There are alternatives available. Virgin Money's new easy-access current account is set to offer 2.85%, which is a shake-up for the market. And if inflation continues to fall as experts predict, the best one and two year fixed-rate bonds (currently paying 3.45% and 3.85% respectively) will finally begin offering real gains against the cost of living.

Mark Hornby

(For more information on savings and compensation, see our savings account page)