In a shock move National Savings and Investments (NS&I), has announced plans to actually increase the savings rate for almost 94,000 of its customers currently holding its Cash ISA and Cash ISA T (formerly TESSA Only ISA). The accounts both currently pay a rate of just 0.50%, however from the 25 May 2013 these customers will be transferred to the Direct ISA currently paying a best buy rate of 2.25%. Fantastic news, especially in the current climate when providers are slashing rates to record low levels (see article ‘M&S Bank slashes rate to shocking new low’).
Now, the cynic in me would say that leaves plenty of time for NS&I to tinker with the rate which is currently one of the best variable Cash ISAs available. And it’s unlikely that they’ll want to be in this position for long. Back in November 2012, NS&I announced plans to cut the rate on this ISA from 2.50% to 2.25%, and earlier that year cut another of its savings accounts, Direct Saver. Apparently this was to stem the flow of money coming in as they were concerned about breaching their net finance targets which they say are set in order that NS&I ensures a competitive market.
Unlike other savings providers, NS&I has a unique Government backing which protects 100% of savers' cash – regardless of how much you have saved with them. Most other UK based bank and building societies are covered by the Financial Service Compensation Scheme, which covered savers up to £85,000 per person, per banking licence. See details of banking licences here.
Due to this, and some unique products (Index Linked Certificates for one), NS&I has remained popular and recent years have seen savers pouring money in because of fears about the world economy and particular concerns about the health of Europe and many well known banks.
It remains to be seen if NS&I will maintain this competitive rate or whether, like many other providers, it will slash the rate in line with market sentiment. What is clear however is that savers can’t risk being complacent.
But let’s not take it all away from NS&I, it’s the first bit of good news we’ve had in a while, let’s hope it continues….sadly I think that is being over optimistic.