National Savings & Investments (NS&I) has been forced to cut the interest rate on one of its most popular account after concerns were raised that it might breach its financing target.
In a bid to maintain competition and fairness in the savings market, the Treasury set a net financing target for the amount of money NS&I can take in. For the year 2011/12 the target is £4 billion, however the latest forecast, released today, shows NS&I are likely to breach this figure by around £500 million.
Over the past few years savers have flocked to NS&I as they look for a safe haven where their deposits are guaranteed. It would also appear that over the last few months a small number of savers have deposited large amounts with NS&I, again attracted by the security offered.
Given the forecasted position and in an effort to limit the amount of money held in NS&I savings accounts, the interest rate on their Direct Saver account has been reduced from 1.75% gross per annum to 1.5%. The change will take effect immediately and NS&I hope it will cause some customers to move away in an effort to find the best savings interest rates.
The move will affect 20,000 customers and will be seen by many as a further blow to savers who despite recent falls in inflation are still struggling to find best buy savings accounts which provide a real return.
NS&I chief executive, Jane Platt, said: “Reducing the rate on Direct Saver was a very difficult decision. However, we have to take action to try and moderate the level of deposits into this account over the coming months.”
NS&I Direct Saver Account
The direct saver is one of NS&I’s most popular products.
Anyone over the age of 16 can open the account, depositing as little as £1. The maximum investment is £2 million, and the account has no specific term, making it popular for savers looking for flexibility.
Index Linked Certificates
The move comes after NS&I’s most popular product, the Index Linked Certificates, were withdrawn in the middle of last year, again after fears that savings targets would be breached.
The tax free Index Linked Certificates attracted half a million savers, at a time when the rate of inflation was rising dramatically. Today’s move to cut the interest rate on the Direct Saver account will dampen hopes of an early return for the Index Linked Certificates.