Boost for millions of savers as NS&I more than doubles interest rates

National Savings & Investments has raised rates on a raft of deals in a boon to struggling savers after banks failed to pass on the benefit of the Bank Rate rise last week.

The Government-backed savings institution said it would raise rates on its easy-access Direct Saver accounts and Income Bonds by 0.2 percentage points, from 0.15pc to 0.35pc, on Dec 29.

This is the second change to the income bonds rate in two months after it was raised from 0.01pc to 0.15pc in November.

The rate on NS&I’s Direct Isa will rise by 0.25 percentage points, from 0.1pc to 0.35pc.

The move could raise hopes of a reprieve for millions of long-suffering households who have yet to see any benefit from rising interest rates. No high street banks have yet passed on the 0.15 percentage point rise in Bank Rate unveiled by the Bank of England last week, except for unpopular tracker accounts which automatically follow the rate.

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Anna Bowes of Savings Champion, an analyst, said banks may now feel pressured to follow NS&I and put up rates. She added, however, that she thought it was unlikely that there would be a dramatic rise from the large banks.

“High street banks are just not interested enough in raising money from savers to significantly raise rates,” she said. “They didn’t react when NS&I put rates up in November, and I doubt they will now. The smaller banks are the ones to watch.”

While better than the average easy-access rate of 0.19pc, NS&I’s Direct Saver is far from market-leading. A sum of £100,000 deposited in this account would earn £362 less in interest over a year compared to the best-paying easy-access account, available from Investec at 0.71pc.

NS&I's new Direct Isa rate of 0.35pc comfortably beats the average rate of 0.26pc, according to Moneyfacts, an analyst. But depositing £100,000 in this account rather than the market-leading 0.67pc deal from Shawbrook Bank would see the saver lose out on £322 over a year.

Sarah Coles, of stockbroker Hargreaves Lansdown, said: “You’re sacrificing almost half of the potential interest to gain the benefits of the NS&I brand.

“There are those who feel safer with NS&I, especially as your money is protected by the Treasury. However, given that the first £85,000 held with any institution is protected by the Financial Services Compensation Scheme, there is little to be gained unless you have a really significant balance.”

Just one year ago, Income Bonds offered a market-leading rate of 1.16pc. This was cut by more than 99pc after NS&I attracted too many customers.

The Government-backed institution is one of the ways the Treasury raises cash. It is aiming to bring in £6bn by April but as of September had only achieved £600m of this goal. NS&I said it had increased rates to tempt in savers to hit this funding target.

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