NS&I announced plans to reduce interest rates across a number of products back in February, with the changes expected to come into effect from May 1, 2020. However, last month, the government-backed savings bank cancelled the cuts to NS&I variable rate products, in an effort to “support savers” during the ongoing coronavirus (COVID-19) pandemic.
While fixed term product interest rate reductions which had been announced in February were to still go ahead, other changes were not – meaning some rates remain unchanged.
This includes variable rate savings products such as the Direct Saver, Investment Account and Income Bonds.
Additionally, the Premium Bonds prize fund rate remains at 1.40 percent – rather than being reduced by 10 basis points as planned.
This move would have seen the current odds change from 24,500 to one, to 26,000 to one.
The change to Income Bonds which had been planned would have seen the rate drop by 45 basis points.
This would have taken it from 1.15 percent gross (1.16 AER) to 0.70 percent gross (0.7 percent AER).
The announcement came following the Bank of England making the decision to cut the Bank Rate successively – dropping from 0.75 to 0.25 and then 0.1.
Now, the Bank of England Base Rate is at a record low, with the decision already having an impact on the interest rates offered on certain savings and current accounts.
Following the cancellation of the planned cut, Kay Ingram, Director of Public Policy at LEBC Group, commented on this savings option.
Ms Ingram, who is a chartered financial planner, told Express.co.uk: “The Government backed savings are suitable for those who wish to receive a regular income from their savings, and these savers have recently received a boost due to the Treasury’s decision to maintain the variable rate of interest at 1.15 percent (1.16 percent AER).
“A planned rate cut from May 1, announced in February will not now happen, making this rate highly competitive following recent cuts to other savings rates, following the Bank of England slashing the cost of borrowing to 0.1 percent.”
Ms Ingram went on to share her thoughts on what the decision could mean for the future.
“This could be a sign of things to come,” she suggested.
“It is clear that the Chancellor has to find ways of paying for the debt built up by Government to tackle the COVID-19 outbreak.
“He could and may raise taxes, but with the economy expected to take months or years to recover this may prove difficult. He could borrow from foreign investors but a third way, and one which has been used before in times of national crisis, is to borrow from the public by offering an attractive interest rate backed up by a Government guarantee.
Savers who are over the age of 16 may apply for Income Bonds.
However, there are investment limits to be aware of.
To open an account, a person must do so with at least £500.
They can then hold up to a total of £1million per person in Income Bonds accounts.
It’s possible to withdraw the money with no notice and no penalty.
That said, it’s important to be aware that there is a minimum withdrawal of £500, and the saver needs to keep a balance of at least £500 in order to keep the account open.