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Over a month ago bank rate rose for only the second time in a decade – promising a bit more money for people who have savings and are seeing their money eroded by inflation.
They would probably hope to get an extra paltry 0.25 per cent interest on their already diminishing savings – lucky to get just over one per cent on an instant access cash ISA when inflation is running at 2.7 per cent.
However the well paid top mandarins and ministers at the Treasury and National Savings ( their chief exec, ex Barclays banker Ian Ackerley is on a pittance of £185,000 a year plus an annual £69,000 payment into his pension) had other ideas. Why not use the cover of the bank rate rise to slash the interest we already pay out to people who use National Savings as a safe haven but need to access money to meet unexpected bills for a broken boiler or fridge. Everybody will think interest rates will go up, they wouldn’t think anyone would slash them now
So in July when both the Treasury and National Savings knew a bank rate rise was imminent they agreed not to put up the rate of their cash isa but CUT it by 0.25 per cent to just 0.75 per cent. It was though Mark Carney, the governor of the Bank of England was about to announce a bank rate cut not a bank rate rise.
Today the new cut came into effect – just at the point when other banks and building societies are putting their rates on equivalent cash isas UP.
You would think from the blurb on their website that National Savings would do the opposite. Their comment on interest rate changes reads:
“Can NS&I change the interest rate?
Yes – the rate is variable so we can change it up or down from time to time, for example when the Bank of England base rate changes or when rates in the general savings market change. See the customer agreement (terms and conditions) for more details.”
So we know now in this case when the bank interest rate goes UP, the National Savings rate will go DOWN.
And as for other providers- Metro Bank for example, has an equivalent instant access cash isa which was paying less than National Savings at 0.75 per cent. But since the bank rate rise it is now paying more. Its new rate is 0.90 per cent -UP 0.15 per cent while National Savings are DOWN 0.25 per cent to 0.75 per cent. Which Money? has other recommended providers paying more.
So what’s their explanation?
A spokesperson said today :”The decision to reduce the interest rate on Direct ISA was taken in order to deliver positive value for taxpayers. NS&I sets its interest rates to balance the interests of its savers, taxpayers and the stability of the broader financial services sector.
“In order to take this decision, we made a proposal to HM Treasury which was approved. We review the rates on all of our products regularly and recommend changes to HM Treasury when we believe they are appropriate, to ensure that we continue to balance the interests of our savers, taxpayers and the stability of the broader financial services sector.
“We announced the change on 16 July 2018. It is NS&I policy to give customers at least two months’ notice of any detrimental variable rate change on our variable rate accounts, so the rate change will be effective from today, 24 September 2018.”
So basically National Savings are paying lower rates to small savers ( the maximum you can put in the isa is £20,000, the minimum £1) to make sure high rate taxpayers are not having to bear such a burden to fund other public services. No doubt it is linked to the Treasury regretting it has to pay people’s pensions anyway.
My view is the National Savings Direct ISA should be boycotted because the people who run it appear to have the Treasury’s interests than yours at heart. The decision also helps other big banks not to increase rates if the state rival is cutting rates – and will boost profits for the major banks.
I took all my money out of this particular National Savings account today. I would not blame other people doing the same – now you can get higher isa rates elsewhere. Your only restriction is that if took out an isa this financial year ( from April) you can’t take out another tax free cash account. But if you did it last year you can and should – rather than leave the Treasury to profit from you.