Blow for savers as NS&I is forced to cut interest rate on account

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Savers were dealt a further blow this week after Government-backed National Savings & Investments (NS&I) cut the interest rate on a key account.

The group has been forced to rein back its savings offer because it is in danger of breaching the net financing target it is set by the Treasury in order to ensure a competitive market place.

In a move affecting just under 20,000 customers, NS&I has cut the interest rate on its Direct Saver accounts from 1.75 per cent to 1.5 per cent.

It hopes its actions will trigger a reduction in deposit levels, which have been driven higher by those “looking for safety”. However, it comes at a tough time for savers, who have had trouble finding accounts to give them real returns.

NS&I said the build-up had been caused by a “relatively small” number of savers who have been depositing large amounts of money since November, while customers have not been taking their money out as expected.

Jane Platt, chief executive of NS&I, 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.”

The Direct Saver account can be opened with a £1 deposit and has a maximum investment of £2m per person, with no set investment term. NS&I’s latest move comes after it had to withdraw an inflation-beating product last summer because its popularity meant the body was in danger of breaching its net financing target.

The index-linked savings certificate attracted nearly 500,000 savers over a four-month period.

NS&I has a “net financing” target which is set each year by the Treasury and takes into account the amount of cash flowing in from deposits and interest, as well as the amounts coming out from withdrawals and interest or Premium Bond prize draw payments.