Next week, the swingeing cuts to the National Savings & Investments (NS&I) on-sale easy access accounts, along with other less shocking but nevertheless painful cuts to the Direct ISA, Junior ISA and premium prize draw fund will come into force.
The cuts, which take effect from 24th November 2020, will take a number of these NS&I accounts from hero to zero, with the most painful cut happening to the easy access Income Bonds Account. This is currently paying a monthly interest rate of 1.15% gross on balances of up to £1m – but will be cut to an appalling 0.01% from 24th November.
For someone with a balance of £50,000, this would mean that the monthly interest they earn will fall from approximately £48 a month to around 42 pence! One might get you a night in budget hotel and the other wouldn’t even buy you a coffee. And NS&I have stated that anyone with a balance of £646 or less will earn no interest at all as they are only able to pay out interest if it is greater than 0.5 pence.
This and the other cuts by NS&I are detailed in the table below;
But it's not just the on-sale accounts that are being slashed. Cuts to the off-sale fixed rate products are also taking place from 24th November. Click here to read more about what to watch out for if you have an NS&I Fixed Term Product that is due to mature.
So, what can savers do to improve their lot?
Shop around for the best rates
With some of these accounts being cut to the bone, it is important to shop around for the best rates you can find elsewhere, although this could mean choosing a provider that you have not heard of.
This can often be a worrying thing to do as there are many reports of scams these days. But you can rest assured, that any account that is listed on our best buy tables are Bona fide and therefore your money is protected by the Financial Services Compensation Scheme, which covers up to £85,000 per person, per banking licence.
At the time of writing, the best Easy Access account on the market is paying 0.70% AER with Saga (the underlying account is provided by Marcus by Goldman Sachs).
If you can tie some of your money up, Fixed Rate Bonds are paying more and you can rest assured that for the term of the account, you know the interest rate you are earning won’t fall. Currently the best 1-year fixed rate bond is with FirstSave paying 1.00% gross AER.
And the longer the term, the better the rate. Over 3-years, the best rates is 1.25% also from FirstSave Bank – and over 5-years, through the cash Platform Raisin UK you can earn up to 1.46% AER via AgriBank. It should be noted that funds deposited with AgriBank are protected by the Maltese Depositor Protection Scheme, through the European Deposit Guarantee Scheme (DGS). Savings deposits with European banks are protected by the European DGS within each member state that reimburse depositors up to a defined limit if their bank fails and deposits become unavailable. The level of deposit protection across the European Union is €100,000.
Sharia Fixed Term Accounts are paying a little more still, with Al Rayan Bank paying the best 1-year Expected Profit Rate (EPR) of 1.08% and BLME paying the best 3 and 5 year EPRs of 1.30% AER and 1.50% AER respectively.
What are my options if I have more than £85,000 invested with NS&I?
Cash Savings Platforms
Because NS&I offers 100% protection on all the funds held, there are many savers with large sums that will now have to either remain in NS&I earning virtually nothing, or be split between multiple savings accounts in order to keep the funds protected under the FSCS.
Someone holding £500,000 in the NS&I Income Bonds account would have to open six different accounts to make sure their cash remains secure. For many the hassle of doing this means they have to make a choice. Either knuckle down and open and monitor multiple accounts – or leave your money with one provider, and therefore anything over £85,000 unprotected.
As a result, the evolution of Cash Savings Platforms is exciting and as they continue to develop, this will not only remove the dilemma for wealthier cash savers, but it could reduce the inertia that many savers suffer from, as they make it easier for people to switch.
This is because, rather than having to apply individually for several accounts, with just one application onto the Cash Savings Platform, you can access numerous accounts with just the click of a mouse. The downside is that the platforms will not necessarily offer the best rates on the market and some have more partner banks than others – so some may not be able to cater for those with much larger cash holdings. But for many, as long as the return is more than they are currently earning, not having access to all the very best rates is not as important and ultimately you’ll earn more than the shockingly bad rates on the high street or in fact the 0.01% NS&I will be paying some of its savers. And the ease of opening new accounts can make it easier to spread the cash between a number of providers, to keep more protected under the Financial Services Compensation Scheme.
The very best rates can be achieved by scouring the whole market and opening as many accounts as required. But for those who don’t have the time, and generally have balances of more than £85,000, the savings platforms might be the compromise which means you don’t leave your cash languishing with your high street bank, earning very little interest and potentially not fully protected.
Take a look at our Cash Savings Platform comparison page for a snapshot of the key platforms available – or call us for more information and to discuss which platform might be the most appropriate for you.
Dismayed with cash rates?
If you’re dismayed with the rates being offered by the banks and would like to explore other options outside of cash why not get in touch. We’re currently offering all those with £100,000 or more in savings, investments or pensions a FREE financial planning review with one of our TPO colleagues, worth up to £500. You can find out more here.
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