NS&I reduces interest rates offered on variable rate products

NS&I has today announced that it will be reducing the interest rates on five of its variable rate products. NS&I will also be changing the fixed interest component offered to Index-linked Savings Certificates customers whose investments are maturing.

The decision follows publication of NS&I’s Net Financing target for 2016-17 which stands at £6 billion, within a range of £4 billion to £8 billion. In the current financial year, NS&I is forecast to raise £11.5 billion in Net Financing against a £10 billion target, within a range of £8 billion to £12 billion.

The variable rate changes will apply to Premium Bonds, Direct ISA, Direct Saver, Income Bonds and Investment Account. Changes to Index-linked Savings Certificates will only affect those customers who renew Certificates which mature on or after 28 March.

NS&I will be notifying customers holding affected variable rate savings accounts over the coming weeks.

Jane Platt, Chief Executive, NS&I, said:

“It is always a difficult decision to reduce rates but downwards movements in interest rates across the cash savings market mean that our rates have risen in the competitor tables.

“NS&I aims to strike a balance between the needs of savers, taxpayers and the stability of the broader financial services sector, while raising the required level of Net Financing for the Treasury. These changes will allow us to manage demand in order to achieve our new Net Financing target, and deliver positive value to taxpayers.

“The majority of the new interest rates on offer are either at or above average market rates. We believe they present a fair offer to customers, who will also continue to benefit from our 100% HM Treasury guarantee on all holdings, as well as tax-free prizes for Premium Bonds.”

Variable rate savings products

Product Current rate New rate Effective from
Direct ISA 1.25% tax-free/AER 1.00% tax-free/AER 6 June 2016
Direct Saver 1.10% gross/AER 0.80% gross/AER 6 June 2016
Income Bonds 1.25% gross1.26% AER 1.00% gross/AER 6 June 2016
Investment Account 0.75% gross/AER 0.45% gross/AER 1 July 2016

Premium Bonds

Product Current prize fund rate Current odds New prize fund rate (from 1 June 2016) New odds (from 1 June 2016)
Premium Bonds 1.35% tax-free 26,000 to 1 1.25% tax-free 30,000 to 1

 

March 2016 June 2016  (estimate)
Total value of prizes £67,584,900 £62,897,175
Total number of prizes 2,310,596 2,012,711
Prize band split:Higher value(£5,000 +)Medium value (£500 +)

Lower value (£25 +)

7% of prize fund5% of prize fund

88% of prize fund

5% of prize fund5% of prize fund

90% of prize fund

 

Value of prizes  Number of prizes in March 2016 Number of prizes in June 2016 (estimate)
£1,000,000 2 2
£100,000 5 2
£50,000 12 5
£25,000 22 9
£10,000 53 24
£5,000 110 46
£1,000 1,352 1,257
£500 4,056 3,771
£100  18,503 64,198
£50 18,503 64,198
£25 2,267,978 1,879,199
Total: 2,310,596 2,012,711

Fixed-term savings products – changes for customers with maturing investments

Index-linked Savings Certificates are not currently on sale but are still available to customers who already hold the product and reach the end of their investment term.  The fixed interest component of the rate (paid in addition to index-linking) will reduce from 0.05% to 0.01% for customers who renew Certificates which mature on or after 28 March. However, where we have already written to customers and offered the higher rate, we will honour that rate if they choose to renew their investment for another term of the same length.

Product Current rate New rate Effective from
Index-linked Savings Certificates RPI + 0.05% tax-free RPI + 0.01% tax-free 28 March 2016

Notes to Editors

  1. NS&I is one of the largest savings organisations in the UK, offering a range of savings and investments to more than 25 million customers. All products offer 100% capital security, because NS&I is backed by HM Treasury.
  2. Net Financing is the measure of the net change of NS&I funds, meaning total inflows from deposits, retention of maturing monies and capitalised and accrued interest, less the total outflows from withdrawals and interest or Premium Bonds prize draw payments. A positive Net Financing figure represents a positive contribution to government financing.
  3. Tax-free means that interest is exempt from UK Income Tax and Capital Gains Tax.
  4. AER stands for Annual Equivalent Rate and enables the comparison of interest rates from different financial institutions and across different products on a like-for-like basis. It shows what the notional annual rate would be if interest was compounded each time it was credited or paid out. Where interest is credited once a year the rate quoted and the AER will be the same.
  5. Information on our products can be found here.
  6. For further information, or to request an interview, please contact the NS&I media team.