NS&I reduces Isa interest rate to 2.25%

| November 5, 2012 | 0 Comments
NS&I reduces Isa interest rate to 2.25%

National Savings & Investments (NS&I) has reduced the interest rate on its tax-free cash Isa from 2.5% to 2.25, affecting 320,000 savers.

The cut follows a review of the market which identified a trend for rates to be cut on similar products.

The cut by NS&I, which is the first it has made since 2009, takes effect immediately.

In a statement NS&I said: “NS&I sets its interest rates to balance the interests of its savers, taxpayers and supporting stability in the wider financial services sector.

“NS&I has taken the decision to reduce the interest rate on its Direct ISA following its regular review of the savings market, which includes the interest rates payable on products comparable to the Direct Isa.”

Under government guidelines NS&I is required to offer rates that reflect the market but they should not lead the market.

According to price comparison site Moneyfacts the current average ISA rate is 2.18%.

The Funding For Lending scheme, launched by the government in August, is believed to have made lenders less reliant on savers’ deposits, leading to rate cuts on a number of products.

The annual ISA limit increased to £11,280 for the 12/2013 tax year, of which £5,640 can be in cash and all interest is tax-free.

New research by HSBC suggests that 31 per cent of UK households have less than £250 in savings, while 19 per cent have no savings at all.

HSBC found that half of people aged between 16 and 24 year have less than £250 in savings, compared with 42 per cent of those in the 35 to 44 age group.

This suggests that people are finding it more difficult to save then they were in 2011, when the figures were 32% and 35% respectively.

“These findings highlight a lack of financial preparation among the British public that appears to have worsened slightly over the past year,” said Bruno Genovese, Head of Savings for HSBC.

The recommended financial safety-net for households is three months’ average monthly take-home pay.

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