I would consider getting rid of your NS&I savings accounts at the end of this week.
On Friday, the rate on the popular National Savings and Investment easy-access account, Direct Saver, falls to 3.5 percent. It is a big drop imposed by the Government’s savings arm – down from 3.75 per cent and 4 per cent earlier this year.
It also lowers the rate of its Income Bonus, from 4.69 percent to 3.44 percent. This account has proven to be particularly popular among retirees who value income from their savings because it pays interest each month.
The shocking cuts come on the heels of NS&I’s cuts to its fixed rate bonds. Here, it offers just 3.95 percent to savers looking to renew their one-year bonds close to maturity. It’s a blow to savers, up from the 4.35 percent offered from mid-October to the beginning of this month. In July, the interest rate offered was a tempting 5.15 percent. On two-year bonds you can now get a modest 3.6 percent and 3.5 percent on three years.
This avalanche of cuts means you can get a better deal elsewhere. So where should you move your cash?
You can get a substantially better rate than Chetwood online bank’s NS&I Direct Saver. It is offered at 4.71 per cent, giving you £121 more interest a year on £10,000.
Atom Bank Instant Saver Reward is another good option, but only if you plan to withdraw money from your account from time to time. The account pays an impressive 4.85 percent in the months when you don’t make any withdrawals and 3.25 percent in the months you do.
These two accounts are also a good exchange for the NS&I income bonus for those who prefer to receive interest monthly. They pay 4.61 per cent and 4.75 per cent respectively, if they receive interest monthly, compared to 3.44 per cent for NS&I.
While I would get rid of most NS&I accounts, I will keep my premium bonds, even though the prize rate is dropping for the January draw.
If you prefer an account available on the High Street, look to your local building society. For example, Kent Reliance pays 4.35 per cent; Cambridge degree, 4.25 pc; and BS Family, 4.65 units. Or Co-op Bank will pay you 4.59 per cent, as long as you only make one withdrawal a year.
You could earn around £85 more interest for every £10,000 you transfer from an NS&I fixed rate bond to a more competitive rival. For example, you can get a fixed 4.8 per cent for a year with Ziraat Bank through savings platform Raisin UK, or 4.77 per cent from new bank Vida Savings.
High Street rates are lower but still worth the switch, with the likes of Kent Reliance at 4.65 per cent and Mansfield BS at 4.4 per cent.
Savers with large sums sometimes prefer to stick with NS&I even when rates are lower. This is because all your cash is protected by the Government: in the case of a bank or building society, only the first £85,000 is protected under the Financial Services Compensation Scheme. Some savers prefer to keep a large balance with NS&I rather than take the risk with another provider or endure the hassle of opening multiple accounts to spread it out. However, for these savers there is another good option. Online savings platforms such as Hargreaves Lansdown, Flagstone, Raisin UK and Savings Champion allow you to keep all your money on one platform and split it between several providers, each of which gives you £85,000 of protection. Using one platform means you only have to enter all your personal information once.
While I would get rid of most NS&I accounts, I will keep my premium bonds, even though the prize rate is dropping for the January draw. They come with the excitement of the monthly drawing where you can win a huge tax-free prize.
They are also useful as a home for some easy-access money, including the amount I hand over every six months to the taxman, since you can get your money back in a few days. My earnings this year racked up a decent 4.9 percent tax-free. Only time will tell if keeping them is the right financial decision.
Protect your savings
When savings are so hard-earned, it’s a shame that savers allow their value to fall in real terms.
If your savings rate is less than 2.3 percent, you’re losing value. Tomorrow we should know the inflation rate for the year until November. If it’s up even more than 2.3 percent, the value of your cash is eroding even faster.
It is the big banks that tend to pay these pitiful rates, and the worst are Lloyds and Halifax.
Halifax Everyday Saver and Isa Saver Variable Isa are 1.15 per cent up to £10,000, 1.25 per cent up to £50,000 and 1.6 per cent above this level.
Lloyds Easy Saver and Cash Isa Saver also pay a paltry 1.15 per cent on balances up to £25,000 and 1.25 per cent above this level. Even if you have £100,000 there, you’ll earn just 1.6 per cent.
Barclays will pay just 1.26 per cent on its easy-access Everyday Saver and Instant Cash Isa from mid-February.
HSBC’s Flexible Saver rate will drop to 1.5 per cent from January 27, while its Loyalty Cash Isa pays 3 per cent at best.
NatWest Flexible Saver and Cash Isa start at 1.5pc on balances up to £25,000. The best you can do with the Cash Isa is 2.8pc on £25,000 or more, while you pay 2pc between £25,000 and £100,000 in your Flexible Saver. . Santander Everyday Saver and Isa Saver are at 1.2 pc
Plum offer
Plum has increased its Easy Access App-Based Cash Isa rate to 5.18 per cent. Despite the higher rate, I would still opt for the Trading 212 account, which now pays 4.9 per cent following a rate cut from 5.17 per cent.
The Plum account restricts withdrawals to three per year; If you earn more, the rate drops to 2.5 percent. And its rate is boosted by a 1.39 percentage point bonus for 12 months, after which it falls to 3.79 percent. And don’t bother moving any cash Isa you already have to benefit from its higher rate. Plum only pays 3.79 percent for transfers, not 5.18 percent.
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