Savers in the NS&I Direct ISA will be disappointed to see the rate they are earning dropped on 24th September to 0.75%, despite the fact that the Bank of England base rate increased on 2nd August and, as a result, we would expect to see rates increase rather than decrease.
While NS&I did make this announcement well in advance, on 16th July, many would have hoped that there would be a change of heart following the base rate announcement that happened just two weeks later.
Of course, the reason cited by NS&I for this drop in the rate has less to do with the prevailing market and more to do with its function as a source of delivering finance for the Government.
NS&I’s net financing target for the current tax year - so the amount it has to raise - has reduced considerably since the beginning of 2017-18 and now stands at just £6bn.This compares with £13bn for the year 2017-18, which was then revised down to £8bn in the Autumn Budget in November 2017.
However, that is little comfort for those who expect NS&I to be fair to savers and would therefore assume a rate rise. 0.75% is the rate that this account was paying when the base rate was just 0.25% - even though there have been two increases to the base rate since then.
The good news for savers is that over 63% of easy access cash ISAs currently available to open are paying more than 0.75% - so there are plenty to choose from.
As a result, savers should really be switching their funds in order to earn a decent rate of interest.
You can earn up to 1.35% on an easy access cash ISA – even more if you are prepared to give notice or tie it up into a fixed rate cash ISA.
At a time when savings rates are heading downwards, it’s a disgrace that NS&I is cutting the rate on this cash ISA and, as long as the amount transferred is less than £85,000, it is just as safe elsewhere. Even if the balance is more, you can partially transfer into more than one alternative, so that the whole amount remains protected by the FSCS.
Remember the golden rule of switching your cash ISA though – don’t cash it in yourself. You need to complete a transfer form with your new provider and they will arrange the transfer for you.
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