Don’t let the NS&I rate cut hit your savings

Savings accounts have lost much of their appeal in recent years.

Since the economic crisis back in 2008, low interest rates have made the return they offer very unattractive. National Savings & Investments (NS&I) has been an exception, leading the savings market and by offering top rates on instant access savings. You can find the best cash rates by completing our simple online cash calculator.

But now NS&I has announced a cut in rates – and even if you are not an NS&I account holder, your savings may need a review.

Why has NS&I cut the rates it offers savers?

When you save with NS&I, you’re actually lending money to the government, which means security as well dependable returns. With a financial crisis brewing, many more people were stashing their savings in an NS&I account.

NS&I explained that it was forced to cut rates because savers had put away billions during the Covid-19 lockdown, leaving it in danger of breaching its government-mandated funding limit for the year.

In doing so, they were supporting the government’s finances – but this is an expensive way for the government to raise money. Other means, like issuing government bonds, known as gilts, cost the treasury much less.

The Treasury therefore set NS&I a cap on the amount of money they can bring in. The government’s need for funds and public demand for secure savings meant that this increased from £6bn to £40bn in July – but with that figure now probably close to being reached, the brakes have been put on.

NS&I Income Bonds, which lead the market for instant access will be cut from 1.16% AER to just 0.01% from 24 November. The premium bond prize fund interest rate is to be cut from 1.40% to 1.00% from December.

This is bad news for anyone who relies on savings NS&I. But the problem may not stop there.

With NS&I no longer the market leader, savers may try to transfer funds – but the small banks and building societies might not have the capacity to cope with a surge in demand. They are likely to announce similar cuts or withdraw products.

Online tools with real world values

At Continuum, we can work with you to find the best homes for your savings – we have an online guide to the best savings rates.

But even if you decide to move your cash, the NS&I bombshell may trigger a rates avalanche.

What can you do?

You might consider fixed-term savings if you don’t need quick access to your cash. In return for tying up your money, fixed-term accounts can provide a better rate than instant access accounts, and the longer you fix, the better the rate usually is. You can fix for up to 5 years and protect yourself against future rate cuts, but you will not benefit from any rate rises and you can’t usually access your money until the product matures.

In any case, with rates so low, saving will actually cost you money in real terms, because the buying power of cash in a low-paying account is being steadily whittled away by inflation.

You may need to consider investing your money, rather than watching it’s buying power  shrink in a savings account.

With help from Continuum, investment can be almost as simple as saving.  By making regular payments into a suitable fund, you may be able to enjoy income or capital growth – or even both – with returns not limited by interest rates.

On the downside, with investment, your capital will be exposed to a level of risk, it may be that you may lose some or all of your capital. Unlike deposit accounts, there are no guarantees with investments. This is why if you are a newcomer to the world of investment, the help of an expert guide is essential.

Expert personal advice is essential to understand the potential of investing. To get our experts working for you, call us now.

At Continuum we help many savers find the best place for their cash on deposit or help them become investors with investment products like ISAs, which can provide generally predictable returns and manageable risks. To find out how we could do the same for you, simply call us.

If you are ready to make the most of your savings, or want to make the step up into investment we are ready to help.

Find out more about what we can do for you now.

The Financial Conduct Authority does not regulate NS&I products and deposit accounts

Equity investments do not afford the same capital security as deposit accounts

The value of an investment can go down as well as up, capital is at risk

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to a suitable savings or investment strategy, you should seek independent financial advice before embarking on any course of action.




Request a callback

Our services at Continuum are delivered by some of the most qualified advisers in the UK, to create the ultimate client experience.

Book a Meeting

If you want to get a free consultation without any obligations, fill in the form below and we'll get in touch with you.

    Sign-up to our free weekly online publication

    How can we help you?
    Scan the code