NS&I today announced they are cutting interest rates on their variable rate products, including Premium Bonds and their Direct ISA.
This is another serious blow for savers who like the absolute security offered by NS&I, but now face even lower returns on their cash. Cuts are not a huge surprise given the market isn’t now expecting an interest rate rise until 2017 at the earliest, and NS&I is also looking to raise less money in the coming financial year.
The cuts will also marginally hit those rolling over index-linked certificates, through the interest paid above inflation was already so minimal as to make the rate reduction largely academic. Despite the low inflation environment, index-linked certificates remain valuable as a long term guaranteed hedge against rising prices, and savers should still consider rolling them over at maturity. Premium bonds are looking increasingly unattractive, but may still be a solution for higher rate taxpayers looking for a temporary home for some of their cash.
