NS&I cuts rates for second time in two months

As its Income Bonds and Direct Saver are slashed for the second consecutive month, the Government-backed provider also plans to cut the prize fund yet again on its Premium Bonds.

From 20 December 2024, National Savings and Investments (NS&I) will reduce rates on its Income Bonds and Direct Saver, to 3.49% AER and 3.50% AER respectively. This marks the second drop in two months after rates on both products were previously reduced to 3.75% AER in November.

These latest changes are in response to the changing savings market and balance “the interests of our savers, taxpayers and the wider financial services sector,” according to Andrew Westhead, NS&I Retail Director.

While these accounts may still offer above average easy access returns, which today (27 November 2024) sit at 2.97%, and many savers may like the security they offer as they’re back by HM Treasury, their appeal may now be waning when compared to the leading rates.

How do they compare?

The fallout from last month’s Autumn Budget, coupled with the latest cut to the Bank of England base rate, have hit variable returns hard in recent weeks.

What’s more, with inflation rising to 2.3% last week, any savers who haven’t stored funds in a high-paying account could struggle to grow their cash significantly in real terms.

It’s therefore a good idea for savers to review their portfolios and be prepared to switch accounts to secure better rates. This includes considering less-known brands which can offer some of the best-performing accounts on the market.

Atom Bank, for instance, currently pays the market-leading rate for an easy access account at 4.85% AER, marking a significant drop when compared to the 5.00% AER returns available this time last month.

This being said, rates above 5% are still available for savers in the easy access ISA sector, with Plum’s Plum Cash ISA paying 5.18% AER when considering a 1.37% bonus for 12 months.

Note that while these accounts are not backed by the Government, your cash is still protected under the Financial Services Compensation Scheme (FSCS), which covers up to £85,000 per banking licence.

More cuts for Premium Bond prize fund

NS&I also announced a cut to its Premium Bonds prize fund rate, which will drop from 4.15% to 4.00% for the January 2025 prize draw.

This now means for every £100 of Premium Bonds purchased, only £4.00 will be paid out in prizes on average, down from £4.15 currently.

This comes after the rate was previously lowered from 4.40% to 4.15% in October. Despite the reduction, the odds of winning are set to remain the same, holding at 22,000 to 1 after dropping last month from 21,000 to 1.

Nevertheless, NS&I is confident that Premium Bonds will “remain a popular choice for millions of savers”, with Westhead expecting the revised draw to deliver “over 5.8 million tax-free prizes worth more than £431 million”.