After a year of rock bottom rates, last week NS&I raised the rate on its easy access Income Bonds Account. But, before we all go out and celebrate, unfortunately the new rate is still very uncompetitive – going up from 0.01% to just 0.15% AER.
Back in the early days of lockdown in 2020, NS&I initially found itself to be an unlikely hero, as following two Bank of England base rate cuts in March that year, best buy rates across the board started to fall, while NS&I made a statement saying that it would support savers through the pandemic.
Unfortunately it was short lived, and on 24th November 2020 the rug was pulled from underneath savers who had flocked to the provider. Rates were not just cut but slashed from paying some of the best rates to paying some of the worst on the market in one fell swoop.
As a result, NS&I has seen enormous amounts of cash being withdrawn, so much so that in the first six months of the current financial year, NS&I has only raised £600m of an annual target of £6bn. Each year, NS&I is given a target of the amount it needs to raise for the Treasury, after taking account of the amount that is withdrawn. This is called the Net Financing Target, and in the first quarter of this tax year NS&I delivered -£0.2 billion (minus £200 million) of Net Financing. Things have improved a little as in the second quarter the provider managed to raise a net amount of £800m – thereby taking the first half balance to £600m – but just 0.10% of the target.
NS&I stated “The impact of the interest rate reductions made by NS&I towards the end of 2020 has continued to be reflected in the volume of outflows NS&I experienced in Q1 2021-22, while the opening up of the economy has also had an effect on savers’ behaviour.”
Because of this, there was always a possibility that a rate rise of some description was on the cards. But also, as expected, the increase is not huge and only brings the rate up to the same level as the NS&I Direct Saver – still not competitive at all.
That said, this increase will be good news for those who, for one reason or another, have decided not to move their cash. Those with very large sums of money may find the security of the protection from HM Treasury on all funds held with NS&I, more important than a better rate. And at least it's now a better rate than you can earn with a high street bank.
On the other hand, the best easy access account currently available is the Double Access Account from Aldermore paying 0.75% AER.* On a balance of £50,000 that’s a difference of earning £75 with NS&I or £375 with Aldermore over the course of a year! However, it should be noted that, as the name suggests, this account from Aldermore only allows two penalty free withdrawals a year – but you can have the interest paid out to you on a monthly basis.
Whether with paltry rate rise has the desired result and NS&I starts to attract money again, we’ll have to wait and see – savers might not be so forgiving, especially as this new rate is nothing to write home about. So, will there be more increases on the table? What NS&I will want to avoid is to attract too much money, so it’ll have to be a careful balancing act. Watch this space.
*We are occasionally paid by some providers if you click through from our Best Buy Tables and open a savings or current account with them. We will never accept a payment that compromises in any way our independent, whole of market approach to providing information on savings products. For clarity we will indicate those companies who remunerate us with an asterisk (*).
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