🔔 NS&I announces a huge increase to its Net Financing Target, giving hope to millions of savers.

Author: Anna Bowes
16th July 2020

National Savings and Investments (NS&I) has confirmed that its Net Financing Target for the tax year 2020/21 has been increased from £6bn (with a margin of + or - £3bn) to £35bn (with a margin of + or - £5bn).

The Net Financing Target indicates the amount of money that NS&I - and therefore the Government - is looking to raise from savers.

This huge increase in the Net Financing Target is good news for savers, as it shows that NS&I has a key role to play in helping to pay for the cost of propping up the economy during this crisis.

At the moment, NS&I occupies three out of the five slots in our  easy access best buy table – with the Income Bonds account paying a market-leading 1.15% monthly gross.

Hopefully this news means that the rates on offer should remain competitive for the foreseeable future, although as the accounts become marooned higher and higher above the rest of the market, a cut in the rates at some stage cannot be ruled out.

That said, at the time that the planned rate cuts were cancelled earlier in the year, NS&I stated;

"To support savers at this difficult time, we are not going ahead with the variable interest rate reductions that we previously announced. So our Premium Bonds, Direct Saver, Income Bonds and Investment Account will stay at their current rates."

During the First World War, an increased need for the Government to borrow money saw the launch of War Savings Certificates in 1916 and National War Bonds in 1917. The former cost 15s and 6d each and became worth £1 within five years. The latter payed 5% interest.

The amount raised during the First World War was almost £433m (around £30 billion based on 2019 values).

Similarly, the Savings Bank ran a nationwide campaign to help fund the Second World War, including a new issue of National Savings Certificates and the introduction of new Defence Bonds. Deposits into National Savings rose from £509m to £1,982m between 1939 and 1946.

One of the biggest draws of NS&I is the fact that ALL deposits placed with the provider are guaranteed by HM Treasury – but it is now also offering some of the best rates on the market too.

Click here to listen to Anna Bowes discussing this and the competitiveness of other NS&I products with Paul Lewis on BBC Radio 4 Money Box.

This support for savers is especially important as the latest inflation figures indicate that there is still very little likelihood of a base rate rise on the horizon. 

An increase in the price of computer games, computer games consoles and clothing saw inflation, as measured by the Consumer Prices Index (CPI), increase slightly in June 2020 – reaching 0.60%. 

CPI had dropped to a four year low of 0.50% in May 2020 – due in the main to the falling cost of fuel prices at the pump - but this slight increase in June still sees inflation far below the Bank of England’s target of 2% and way off its January level of 1.80%.

Jonathan Athow, deputy national statistician for economic statistics at the Office for National Statistics (ONS), said:

"The inflation rate has increased for the first time this year, but remains low by historical standards.

Due to the impact of the coronavirus, clothing prices have not followed the usual seasonal pattern this year, with the normal falls due to the start of the summer sales failing to materialise.

Prices for computer games and consoles have risen, but food prices, particularly vegetables, have fallen.

The ONS added "It is possible that prices have been influenced by the coronavirus (Covid-19) lockdown changing the timing of demand and the availability of some items, particularly consoles".

While a low inflation rate means that savers can find plenty of accounts that are at least keeping pace with inflation, it also means that it’s unlikely the Bank of England will be planning to increase the base rate anytime soon – and therefore we can expect to see record low interest rates for the foreseeable future.

That said, although on the whole rates have continued to fall, there have been a couple of accounts bucking the trend recently. However, as ever, you have to be quick to take advantage.

Allica Bank launched its first  fixed rate bonds earlier this year and actually increased the rates it was offering on its 1 and 2 year bonds earlier this month, to sit at the top of the tables paying 1.05% and 1.20% respectively. But those rates didn’t last long and although the Bank is still offering the best 1 year fixed rate bond, the current rate on offer is 0.95% AER, the 2 year bond has dropped into second position, offering 1.10%, leaving Close Brothers in the top spot at 1.15%.

This is the first time that we can remember that the best 1-year fixed rate bond has paid less than 1% and it’s a worrying indication that the market is expecting to see low rates for the foreseeable future.

Of course, as mentioned above, NS&I is still paying 1.15% monthly gross on its easy access Income Bonds account – but as a variable rate, we could still see this fall in the future. In the meantime, NS&I is the place to stash your cash, especially if you can’t tie it up to protect against further cuts.

Hopefully, as new banks are launched, they too will offer market-leading rates – as Allica did - but again it is worth mentioning that you may have to be quick to take advantage.

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