NS&I cuts interest rates AGAIN: Savers urged 'do not settle for these disappointing rates'

The Government-backed savings provider has reduced its two-year Guaranteed Growth Bonds to 3.60 per cent gross/AER.

This is down from 4.10 per cent, while the Income option now offers 3.54 per cent gross.

The three-year bonds have seen similar reductions, with Growth bonds dropping to 3.50 per cent gross/AER from four per cent, and Income bonds now paying 3.44 per cent gross.

These changes, effective from December 3, 2024, reflect broader shifts in the UK savings market, impacting millions of savers who rely on NS&I's products for their financial planning.

For 2-year bonds, the 0.50 percentage point drop from 4.10 per cent to 3.60 per cent on Growth bonds marks one of the steepest declines. Similarly, two-year Income bonds have fallen from 4.02 per cent to 3.54 per cent.

The three-year options, which were last updated in September, have also seen substantial cuts, with Growth bonds declining by half a percentage point from four per cent to 3.50 per cent.

The Income version of the three -year bonds has also dropped from 3.93 per cent to 3.44 per cent.

Sarah Coles, head of personal finance, Hargreaves Lansdown said: “The savings boom has a sting in the tail for loyal NS&I savers.

"NS&I has an obligation not to be too far ahead of its competitors, so cuts right across the savings market were always going to put it under pressure to reduce rates.

"However, the rates weren’t much to write home about in the first place. There are still a huge number of accounts paying more than 4.5 per cent over two years, and seven offering the same over three years, so even at 4.1 per cent and four per cent, these bonds were well below the best on offer. Now they’re downright disappointing."

This latest round of rate cuts comes ahead of NS&I's previously announced reduction in Premium Bonds prize fund rate to four per cent from January. The Premium Bonds changes will affect 24 million holders across the UK.

Despite the rate reduction, NS&I will maintain the Premium Bonds winning odds at 22,000 to one.

The January 2025 Premium Bonds draw is expected to feature over £431 million in prizes, with rewards ranging from two £1 million prizes to over 1.8 million £25 prizes.

Coles added: "You can currently make more than five per cent on easy access savings, up to 4.8 per cent over one year, and 4.6 per cent over two, three and five years. There’s no need to settle for disappointing rates from anyone – even NS&I.

"There will be some people holding on because they have large sums of cash and they know they can put up to £1 million in the growth and income bonds, it’s all completely protected by the Treasury, and they can manage it all in one place.

"However, the maturity of cash savings platforms has given them another option. They can spread their money across a number of different banks and accounts and manage it in one place.

"As long as they don’t have more than £85,000 with each institution, it’s protected by the FSCS. It means you don’t have to sit tight as rates drop, you can shop around and get a better deal.”

As part of the latest changes, the provider has also withdrawn its five-year British Savings Bonds options from sale to new customers.

However, existing customers with maturing fixed-term Issues will still have access to the five-year bonds.