Is this how the government treats savers?

Savers have never been treated more contemptuously than last week, when NS&I refused to explain or even apologise to customers over drastic cuts to their rates. Simon Bain looks at why NS&I – once a national institution to be proud of – now feels like a bureaucratic arm of an uncaring government which no longer cares whether we save…

We all know savings rates are through the floor. So when back in April the government reversed plans to drop interest rates on its National Savings & Investments accounts, savers breathed a sigh of relief.

The state-owned bank NS&I was due to lower rates on a string of variable-rate savings accounts on May 1, but cancelled the changes in light of the pandemic.

But last week NS&I savers like me got an e-mail which read:

“We’re getting in touch to let you know that we’re reducing the interest rates on some of our savings accounts on 24 November 2020.”

Closer inspection revealed that it was not “some” of their savings accounts that were being cut, but all of them. And the rates weren’t being “reduced”, they were being virtually wiped out. And there was no hint of an explanation, let alone apology.

No explanation, no apology

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In better times: a classic NS&I poster

The investment account, held by 1.5million of us, which was paying 0.8% will fall to 0.01%, i.e. nothing. Income bonds, favoured of pensioners and held by 186,000 people with £22billion invested, were paying 1.16%. Generous in the current market, admittedly, but the new rate? Yes, it’s not a rate at all, it’s also 0.01%.

The Direct Isa was paying 0.9% and is ‘reduced’ to 0.1%, while Direct Saver (which I have, or rather had) was paying 1% but is granted a generous 0.15% – reduced by a mere 85%. Governments love to talk stats so how about this one…

By my calculations, the rates on its two most popular accounts have been cut by 98.75% (investment account) and 99.2% (income bonds).

Chief executive Ian Ackerley was reported in the press as saying:

“It is important that we strike a balance between the interests of savers, taxpayers and the broader financial services sector, and it is time for NS&I to return to a more normal competitive position for our products.”

His customers were clearly not thought worthy of being given even this explanation. Perhaps they might have asked where, in the ‘balance’, were savers.

He claimed NS&I was now in a “normal competitive position”? Even in today’s market, there is nothing competitive about a 0.01% interest rate, unless you are trying to be the lowest.

NS&I had sucked in huge amounts because it had stayed competitive, and was paying more than the government needed to (it can borrow so cheaply elsewhere). So savers might have understood the need to moderate rates, had it been explained to them. But it wouldn’t have been easy to explain wiping them out – so best not try?

Back in February, NS&I had announced modest cuts – Direct Saver and Income Bonds would have gone to 0.7% for instance. Finally we come to Premium Bonds, which also attracted tons of new money when the effective prize rate was held at 1.4% in April, rather than being cut to 1.3%.

Now it has been cut to 1%, for which I suppose bondholders should be grateful. I’m holding onto my bonds, even though the odds of winning one of the big prizes have gone out to 34,500 to 1 (from a mere 24,500 to 1).

Changing savings for the worse

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Saving was once promoted as your patriotic duty. Not any more…

It will all have a knock-on effect on the market, and not in a good way. Anna Bowes at Savings Champion said:

“NS&I has just put up a big closed sign. Hopefully the savers who have been piling in will not accept this behaviour and move their money.”

But where to? Sarah Coles at Hargreaves Lansdown said:

“Competitive accounts in the easy access market — which have been forced to keep within shouting distance of NS&I in order to raise cash – will be able to cut back too. It means we’re likely to see the best rates disappear.”

Marcus, the bank launched by Goldman Sachs with fanfares and a 1.5% rate two years ago, last week cut its rate for the fifth time, to 0.7%. The account was anyway closed to new customers in June.

Best buys (as of today, it could change tomorrow) are 1.45% on a three-year bond from Bank of London and The Middle East and 1.1% on a cash Isa from Secure Trust Bank, according to Moneyfacts. Such rates are at least still beating inflation (0.5% in August) – for now.

For easy access like the NS&I accounts, the leader is Coventry Building Society, which launched a new double access (two withdrawals a year) account on 19 September offering 1.2%. I quickly opened one. Two new versions of the account have since been launched, with the rate being pared back each time.

The flash-sale leaving millions behind

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Rates like this are a distant memory

So savings are more than ever in ‘flash sale’ mode where you have to move quickly. But big swathes of NS&I customers may not be the most adept at account-hopping and rate-watching. That army of pensioners with income bonds will not all be jumping on the internet to find the best buy, and trusting their cash to obscure banks they have never heard of. They will just be a lot poorer.

And what about parents?  The NS&I Junior Isa is paying 3.25%, well ahead of the market.  But from 23 November it will wither to a feeble 1.5%. That puts it behind the current rates of 29 other Junior Isas, according to Moneyfacts. Hardly competitive.

As for NS&I, whatever the mechanics of its funding and the rationale for such vicious cuts, it feels like a bureaucratic arm of an uncaring government which cares not whether we save at all.

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