Savers alert: National Savings & Investments (NS&I) reducing rates
Amongst all the good news about the Government’s Funding for Lending Scheme’s positive effects on the First Time Buyer market and how a jump in house prices means that capital growth is returning for buy to let investors, spare a thought for UK savers.
As we have pointed out in previous blogs, savers have found it increasingly difficult in the last year or two to get a return on their investments in a continuing low interest rate environment.
Sir Mervyn King and his successor at the Bank of England, Mark Carney, have both indicated that the Bank of England Bank Rate – also known as the ‘Base Rate’ – will stay below 1% for the next few years. This is obviously bad news for savers who have suffered from years of record-low interest rates and now have to cope with the effects of the Government’s Funding for Lending Scheme, which, by giving banks and building societies access to cheap funding, has reduced the need to attract funding from savers by offering attractive interest rates.
National Savings & Investments (NS&I) is not part of the Funding for Lending Scheme as it does not offer mortgages and up until now it has maintained its savings rates. But that is about to change, because its rates have become too competitive and started to attract too much savings business away from the banks and building societies. NS&I – which looks after £100 billion for 25 million savers – has indicated that it does not want to bring in any extra money between now and next March, just enough to cover any money that savers withdraw.
So, from 12th September, it will reduce its rates by up to 0.5%, before tax, on its three easy-access accounts – Direct Isa, Income Bonds and Direct Saver. Its Direct Isa will fall from a tax-free 2.25% to 1.75%. The Direct Saver rate will drop to 1.1% before tax from 1.5% while its popular Income Bonds, aimed at savers looking for monthly income, will fall to 1.25% before tax from 1.75%.
With official interest rates the lowest they’ve ever been and looking like they will stay that way, keeping money as ‘cash’ is proving to be an unrewarding strategy for most savers. Cash should always be part of your investment portfolio, but is it time to look at other ways of getting a return on your savings?
It pays to talk to an independent financial adviser who can review your situation and advise you on the right savings and investment strategy for you in this low interest rate environment.