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NS&I to reduce interest rates from 24 November 2020

  • NS&I must strike a balance between the interests of savers, taxpayers and the broader financial services sector.
  • Changes will ensure NS&I’s interest rates are aligned appropriately against those of competitors.
  • Interest rate reductions will apply to variable rate and some fixed term savings products, effective from 24 November 2020 – with changes to the Premium Bonds prize-fund rate effective for the December 2020 prize draw.

NS&I today announced interest rate reductions, effective from 24 November 2020, that will apply to NS&I’s variable rate products and some fixed term products. The Premium Bonds prize fund rate will also be reduced and apply from the December 2020 draw.

In July this year, NS&I’s Net Financing target for 2020-21 was revised from £6 billion (+/- £3 billion) to £35 billion (+/- £5 billion) to reflect the Government’s funding requirements due to the Covid-19 pandemic. In Q1 2020-21 (April-June), NS&I saw inflows of £19.9 billion and delivered £14.5 billion of Net Financing. Demand for NS&I products has remained at similarly high levels during Q2 (July-September).

The interest rate reductions announced today will see NS&I align its savings products against the rates offered by the banks and building societies.

Ian Ackerley, NS&I Chief Executive, said:

“Reducing interest rates is always a difficult decision. In April we cancelled interest rate reductions announced in February and scheduled for 1 May. Given successive reductions in the Bank of England base rate in March, and subsequent reductions in interest rates by other providers, several of our products have become ‘best buy’ and we have experienced extremely high demand as a consequence. 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.”

Variable rate savings products

Product

Current interest rate

Interest rate from 24 November 2020 (change in brackets)

Direct Saver

1.00% gross/AER

0.15% gross/AER (-85 basis points)

Investment Account

0.80% gross/AER

0.01% gross/AER (-79 basis points)

Income Bonds

1.15% gross/1.16% AER

0.01% gross/0.01% AER (-114/115 basis points)

Direct ISA

0.90% gross/AER

0.10% gross/AER (-80 basis points)

Junior ISA

3.25% gross/AER

1.50% gross/AER (-175 basis points)

 

Premium Bonds (effective from December 2020)

The Premium Bonds prize fund rate will be reducing by 40 basis points, from 1.40% to 1.00%. The odds of any £1 Bond number winning any prize will decrease from 24,500/1 to 34,500/1. The changes will be effective from the December 2020 prize draw.

 

Current prize fund rate

Current odds

New prize fund rate (from December 2020)

New odds (from December 2020)

1.40% tax-free

24,500 to 1

1.00% tax free

34,500 to 1

Value of Premium Bonds prizes

Value of prizes

Number of prizes in September 2020

Number of prizes in December 2020 (estimate)

£1,000,000

2

2

£100,000

7

4

£50,000

14

9

£25,000

28

16

£10,000

71

43

£5,000

140

83

£1,000

2,204

1,639

£500

6,612

4,917

£100

30,244

26,637

£50

30,244

26,637

£25

3,786,474

2,790,269

Total:

3,856,040

2,850,256

Fixed term savings products

On 24 November, NS&I is also reducing the rates on offer for its fixed term investments, by between 90 and 115 basis points. Fixed term investments are not on general sale and are only available to customers who wish to renew an existing investment when it matures. NS&I will write to all holders of Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates at least 30 days before their end of their term, outlining their options.

Customers holding Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates and whose investments mature on or before 24 November 2020 and who automatically renew into a new Issue of the same term, will receive the previous, higher interest rate. After this date customers who automatically renew into the same term will receive the lower interest rate from 24 December 2020.

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 24 November 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 interest rate

Interest rate from 24 November 2020 (change in brackets)

Guaranteed Growth Bonds

(1-year)

1.10% gross/AER

0.10% gross/AER (-100 basis points)

Guaranteed Growth Bonds

(2-year)

1.20% gross/AER

0.15% gross/AER (-105 basis points)

Guaranteed Growth Bonds

(3-year)

1.30% gross/AER

0.40% gross/AER (-90 basis points)

Guaranteed Growth Bonds

(5-year)

1.65% gross/AER

0.55% gross/AER (-110 basis points)

Guaranteed Income Bonds

(1-year)

1.05% gross / 1.06% AER

0.06% gross / 0.06% AER (-100 basis points)

Guaranteed Income Bonds

(2-year)

1.15% gross / 1.16% AER

0.11% gross / 0.11% AER (-115 basis points)

Guaranteed Income Bonds

(3-year)

1.25% gross / 1.26% AER

0.36% gross / 0.36% AER (-90 basis points)

Guaranteed Income Bonds

(5-year)

1.60% gross / 1.61% AER

0.51% gross / 0.51% AER (-110 basis points)

Fixed Interest Savings Certificates

(2-year)

1.15% tax-free/AER

0.10% tax-free/AER (-105 basis points)

Fixed Interest Savings Certificates

(5-year)

1.60% tax-free/AER

0.50% tax-free/AER (-110 basis points)

 

–Ends–

 

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.
  1. 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.
  1. 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.
  1. Gross is the taxable rate of interest without the deduction of UK Income Tax.
  1. 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. This measure is currently suspended until 30 September 2020.
  1. Information on our product range can be found here.

For further information please contact the NS&I media team as follows:

NS&I media team

Chris Dowsett 020 7932 6799 chris.dowsett@nsandi.com

Jonty Alone 020 7932 6633 jonty.alone@nsandi.com

Sara Brown 020 7932 6874 sara.brown@nsandi.com

Sam Faulkner 020 7932 6801 sam.faulkner@nsandi.com

James Carr 020 7932 6829 james.carr@nsandi.com

Out of hours: All numbers above diverted to staff mobile phones

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Website: www.nsandi.com

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