More rate cuts for NS&I customers

National Savings & Investments (NS&I) has announced changes to some of its savings rates, with a mix of good and bad news for customers. While some rates are being cut, there is also a slight boost for those with the cash ISA.

The bad news is that from 5th March 2025, NS&I will lower the interest rates on its Direct Saver and Income Bonds easy access accounts. Direct Saver will drop from 3.50% to 3.30% AER, while Income Bonds will see a reduction from 3.44% monthly (3.49% AER) to 3.26% monthly (3.30% AER). Additionally, the prize fund rate on Premium Bonds will decrease to 3.80% from the April 2025 draw.

However, there is some positive news. Effective immediately, the Direct ISA rate has increased from 3.00% to 3.50% for both new and existing customers. While this is a welcome boost, it is worth noting that better rates are available elsewhere – and you are not able to transfer in previous ISA allowances.

Why is NS&I cutting rates now?  

One key factor behind the cuts is likely to be the recent base rate reduction of 0.25% in early February, from 4.75% to 4.50%.

But it could also be that NS&I is already on track to meet its net financing target for the tax year – the amount of money it needs to raise each year.  

In the Spring Budget of March 2024, the UK government set NS&I’s net financing target for the 2024-25 financial year at £9 billion, with a leeway of plus or minus £4 billion.  

This is quite a range and as of the second quarter of the 2024/25 tax year, it had raised £3.3 billion. While this is within the target range, it is slightly below the ideal figure, making the decision to cut rates even more disappointing.

Are Premium Bonds still worth hanging on to?

Premium Bonds remain a popular choice, especially for taxpayers, as winnings are tax-free. Rather than paying interest, Premium Bonds give holders the chance to win prizes ranging from £25 to £1 million each month. The odds of winning remain at 22,000 to 1, but in order to keep the odds the same, NS&I has increased the number of £25 prizes while reducing some of the larger payouts. However, the two £1 million jackpots will still be available each month.

Despite the rate cut, many savers are likely to keep their Premium Bonds because of the ‘what-if’ factor – the excitement of potentially winning big.

And for those who pay tax on savings interest, Premium Bonds could offer particularly competitive returns. For example, a tax-free win of the new prize fund interest rate of 3.80% is equivalent to a 4.75% return for basic-rate taxpayers, 6.33% for higher-rate taxpayers, and 6.91% for additional-rate taxpayers in a taxable savings account. No savings accounts currently offer anything close to these rates for higher and additional taxpayers.

Of course the risk is that you win either less than this or even nothing at all, although the latter is highly unlikely if you have a larger holding in Premium Bonds.

How do the new easy access and ISA rates compare?  

For those looking for better easy access savings rates, alternatives exist. Some banks and building societies are currently offering rates as high as 4.57% AER on accounts with no restrictions. Others, like Monument Bank’s Limited Access Saver, is offering 4.75% AER on £25,000 plus, although only three penalty free withdrawals can be made per year and it must be opened via the bank’s mobile banking app. If you are looking for monthly interest, this account allows you to choose this option paying a rate of 4.65% gross monthly.  

Kent Reliance offers an unlimited access account that can be opened in branch or online paying 4.56% AER/4.47% monthly.  

There are plenty of easy access cash ISAs paying more too.  

Take a look at our best buy tables to see what else is on offer.

Why some still choose to stay with NS&I

With better rates available, some savers may consider moving their money to earn more. However, NS&I remains a trusted option due to its government backing. Unlike other banks and building societies, which are protected by the Financial Services Compensation Scheme (FSCS) up to £85,000 per person per institution, NS&I guarantees 100% security for all savings, no matter the amount. So for short term needs, NS&I can be an obvious and simple option.

But for those with smaller balances or who are willing to spread their savings across multiple institutions paying higher rates, it might not be the best choice.

The rise of the cash savings platforms has also added another option for those with larger amounts of cash.

Think of a cash savings platform like a savings supermarket, where with a single application and log-in, you can pick and choose multiple competitive savings accounts - from easy access to fixed term bonds - and providers at the click of a button. Whilst not whole of market, cash platforms often do offer competitive and some market leading accounts. But the real benefit is that they make it easier to spread your cash, so that it can be better protected by the Financial Services Compensation Scheme (FSCS), whilst earning more.

You can now open, access and switch between multiple competitive savings accounts via a single log-in with the our  Savers Hub, powered by Insignis.  

While NS&I’s rate cuts are disappointing, the appeal of Premium Bonds and the security of being able to deposit very large sums securely remain strong. However, savers looking for better returns should explore alternatives, as the current market offers more competitive rates. 

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate cash advice.

The accounts and rates mentioned in this article are accurate and correct as of 27/02/2025.