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NS&I announces reduction in interest rates

  • NS&I today announces interest rate reductions across its fixed and variable savings products, effective from 1 May 2020
  • Changes will ensure NS&I’s interest rates are positioned appropriately against those of its competitors and help NS&I to strike a balance between the needs of its savers, taxpayers and broader market stability

The interest rate changes, effective from 1 May 2020, reflect the fact that due to exceptionally low gilt yields, the measure NS&I uses for tracking the cost effectiveness of the finance it raises for the Government is below target. These changes will re-balance the interests of savers and taxpayers, and help maintain the stability of the broader financial services sector.

Ian Ackerley, NS&I Chief Executive, said:

“Reducing interest rates is always a difficult decision. We need to ensure our interest rates are set at an appropriate position against those of our competitors. These changes reflect NS&I’s requirement to strike a balance between the needs of our savers with taxpayers and the stability of the broader financial services sector.

“We believe our new rates offer our customers a fair return and the assurance of the 100% HM Treasury guarantee on all their holdings with NS&I.”

Variable rate savings products

Product

Current rate

Interest rate from 1 May 2020 (change in brackets)

Direct Saver

1.00% gross/AER

0.70% gross/AER (-30 basis points)

Investment Account

0.80% gross/AER

0.60% gross/AER (-20 basis points)

Income Bonds

1.15% gross / 1.16% AER

0.70% gross / 0.70% AER (-45 basis points)


Premium Bonds (effective from 1 May 2020)

The Premium Bonds prize fund rate will be reducing by 10 basis points, from 1.40% to 1.30%. The odds of any £1 Bond number winning any prize will decrease from 24,500/1 to 26,000/1. The changes will be effective from the May 2020 prize draw.

Current prize fund rate

Current odds

New prize fund rate (from 1 May 2020)

New odds (from 1 May 2020)

1.40% tax-free

24,500 to 1

1.30% tax free

26,000 to 1


Value of Premium Bonds prizes

Value of prizes

Number of prizes in February 2020

Number of prizes in May 2020 (estimate)

£1,000,000

2

2

£100,000

6

5

£50,000

12

11

£25,000

23

21

£10,000

59

54

£5,000

119

106

£1,000

1,984

1,857

£500

5,952

5,571

£100

27,221

13,448

£50

27,221

13,448

£25

3,408,513

3,262,871

Total:

3,471,112

3,297,394


Fixed term savings products

Customers holding Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates and whose investments mature on or before 1 June 2020 and who automatically renew into a new Issue of the same term, will receive the previous, higher interest rate.

However, any customers who choose to renew into a new Issue but a term of a different length, will receive the reduced interest rate effective from 1 May 2020.

Current holdings will be unchanged until they mature and customers do not need to take action now. NS&I will write to all holders of Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates at least 30 days before the end of their term.

Product

Current rate

Interest rate from 1 May 2020 (change in brackets)

Guaranteed Growth Bonds

(1-year)

1.25% gross/AER

1.10% gross/AER (-15 basis points)

Guaranteed Growth Bonds

(2-year)

1.45% gross/AER

1.20% gross/AER (-25 basis points)

Guaranteed Growth Bonds

(3-year)

1.70% gross/AER

1.30% gross/AER (-40 basis points)

Guaranteed Growth Bonds

(5-year)

2.00% gross/AER

1.65% gross/AER (-35 basis points)

Guaranteed Income Bonds

(1-year)

1.20% gross / 1.21% AER

1.05% gross / 1.06% AER (-15 basis points)

Guaranteed Income Bonds

(2-year)

1.40% gross / 1.41% AER

1.15% gross / 1.16% AER (-25 basis points)

Guaranteed Income Bonds

(3-year)

1.65% gross / 1.66% AER

1.25% gross / 1.26% AER (-40 basis points)

Guaranteed Income Bonds

(5-year)

1.95% gross / 1.97% AER

1.60% gross / 1.61% AER (-35 basis points)

Fixed Interest Savings Certificates

(2-year)

1.30% tax-free/AER

1.15% tax-free/AER (-15 basis points)

Fixed Interest Savings Certificates

(5-year)

1.90% tax-free/AER

1.60% tax-free/AER (-30 basis points)


Notes to Editors

  1. NS&I is one of the largest savings organisations in the UK, offering a range of savings and investments to 25 million customers. All products offer 100% capital security as NS&I is backed by HM Treasury.
  2. Net Financing – the measure of the net change of NS&I funds, meaning total inflows from deposits, retention of maturing monies and capitalised and accrued interest, less the total outflows from withdrawals and interest or Premium Bonds prize draw payments. A positive Net Financing figure represents a positive contribution to government financing.
  3. AER stands for Annual Equivalent Rate and enables the comparison of interest rates from different financial institutions and across different products on a like-for-like basis. It shows what the notional annual rate would be if interest was compounded each time it was credited or paid out. Where interest is credited once a year, the rate quoted and the AER will be the same.
  4. Gross is the taxable rate of interest without the deduction of UK Income Tax.
  5. Value Indicator – an indication of NS&I’s cost-effectiveness in raising finance for the Government. In general, it compares the total cost of delivering Net Financing and servicing existing customers’ deposits with how much it would cost the Government to raise funds through the wholesale market via equivalent gilts. Some adjustments and assumptions are made to the calculation, including in identifying and applying an equivalent gilt, in response to specific NS&I product features. Index-linked Savings Certificates are included in the calculation of the Value Indicator and use the same approach as for other products, with one exception to the formula. As the real yield gilt comparators for RPI linked products are currently negative, NS&I applies a floor to the comparative yield set at zero, which means the calculation does not fully reflect the Value Indicator profile of this product. The Value Indicator methodology is agreed with HM Treasury and is reviewed and revised periodically, with its agreement, to support a long-term approach to product strategy.
  6. Information on our product range can be found here.

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