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27th
Jul 2018
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Bad News For 400,000 Savers As NS&I Cut ISA Rate By 25%

Bad News For 400,000 Savers As NS&I Cut ISA Rate By 25%

In mid-July National Savings and Investments (NS&I), the government’s savings provider, announced they would be slashing the interest rate on their Direct ISA by 25%: down to just 0.75% in late September 2018. It's time to transfer out.

Direct ISAs have been a hugely popular tax-free savings wrapper, with the attraction of its unlimited Treasury-backed security. So this is a bit of a kick in the teeth for the nearly-400,000 UK savers who have £4.6bn invested in them. Particularly in the face of a widely-anticipated rise in Bank of England interest rates in August.

Why have they cut NS&I ISA rate?

It feels like the NS&I is saying “we don’t want your money” – and in a sense that’s true. As a government agency the NS&I is obliged to deliver value to taxpayers. A judgement will have been made that the 1% return to so many savers was looking a bit too generous with taxpayers’ money.

It follows on from NS&I’s move earlier this year to restrict access to its Guaranteed Growth Bond, from an open-handed deposit limit of £1M down to £10,000 per person.

The NS&I also needs to avoid having too much influence on the market, as a government department competing with private providers. That’s why they’re obliged to pull back on the very factors that made them attractive to so many savers.

What should you do to maximise your tax-free savings?

Where NS&I leads on its ISA rate, the others will not necessarily follow. Banks and other independent ISA providers are keen to attract your savings, and you could find almost double the NS&I’s new rate with another provider.

It definitely makes sense to shift your money out into a better-performing tax-free savings pot, rather than leave it with the NS&I – not only for the current rate difference, but for future growth.

Make the switch

Everyone with a Direct ISA will be contacted within the next few weeks, and if you want to transfer out you can switch to another provider at no cost. See our how-to guide Transfer Your Cash ISA, with a couple of very important tips, and How Do I Transfer an ISA.

Deposit Cash ISAs

FTSE 100 6 Year Deposit Plan

from Investec

ISA Option
Maximum Potential Return 45.00% at end of term
  • Deposit Taker: Investec Bank plc
  • Term: 6 years

"This plan offers a potential fixed return of 45%, provided the FTSE 100 Index at the end of the term is higher than its value at the start of the plan (subject to averaging). As with other cash deposits, your capital is also eligible for FSCS* protection.

The 45% return is equivalent to 6.38% compound growth each year, which is well over double the best fixed rate bond, and more than 4% per year higher than the top fixed rate Cash ISA.

The downside is that the return is not guaranteed, and so if the FTSE ends lower, you only get your initial capital back.”

  • 45% fixed return if the Index is higher
  • Capital protected product*
  • Eligible for the Financial Services Compensation Scheme (FSCS)
  • Returns not guaranteed. You may only receive a return of your original capital
  • Minimum deposit £3,000
  • Plan designed to be held for full term

Calculate your interest with this plan

Your savings:
£
You could gain:
£0.00 (per tax year)

Important Information: * The return of your initial deposit depends on the ability of the deposit taker (Investec Bank plc) to repay your money. Structured deposits offer you the potential to earn higher returns than you would with a regular savings account. Your returns are based on the performance of an index or commodity. If the investment does not perform well you may receive no income or capital growth, but you can be confident that your capital will be repaid. You have no access to your deposit during the term of the account, typically 3 to 6 years but your original capital will be repaid in full at the end of the term. In the event that the deposit taker is unable to repay your initial investment and any returns stated you may be entitled to compensation from the Financial Services Compensation Scheme (FSCS) depending on your individual circumstances.

FTSE 100 Income Deposit Plan

from Investec

ISA Option
Maximum Potential Return 3.50% annual income
  • Deposit Taker: Investec Bank plc
  • Term: 6 years
  • Potential 3.50% per year based on the performance of the FTSE 100 Index
  • Income paid even if Index falls by 25%
  • Alternative monthly option also available paying up to 3.36% pa
  • Capital protected product*
  • Eligible for the Financial Services Compensation Scheme (FSCS)
  • Returns not guaranteed. You may only receive a return of your original capital
  • Minimum deposit £3,000
  • Plan designed to be held for full term

Calculate your interest with this plan

Your savings:
£
You could gain:
£0.00 (per tax year)

Important Information: * The return of your initial deposit depends on the ability of the deposit taker (Investec Bank plc) to repay your money. Structured deposits offer you the potential to earn higher returns than you would with a regular savings account. Your returns are based on the performance of an index or commodity. If the investment does not perform well you may receive no income or capital growth, but you can be confident that your capital will be repaid. You have no access to your deposit during the term of the account, typically 3 to 6 years but your original capital will be repaid in full at the end of the term. In the event that the deposit taker is unable to repay your initial investment and any returns stated you may be entitled to compensation from the Financial Services Compensation Scheme (FSCS) depending on your individual circumstances.

Fixed Rate Cash ISAs

1 Year Fixed Rate Cash ISA

from Ford Money

Interest Rate (AER) 1.45%
  • Term: 1 Year
  • Minimum deposit £500
  • Interest can be paid monthly or annually
  • Transfers in allowed
  • FSCS Protected
  • Must be 16 or over to apply
  • Early withdrawals subject to term breakage charge

Calculate your interest with this plan

Your savings:
£
You could gain:
£0.00 (per tax year)
Important Risk Information:

This website contains information only and does not constitute advice or a personal recommendation in any way whatsoever. The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. The tax efficiency of ISAs is based on current tax law and there is no guarantee that tax rules will stay the same in the future.

Different types of investment carry different levels of risk and may not be suitable for all investors. Please ensure that you read the Important Risk Information for further details. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment and should read the product literature. If you are in any doubt as to the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

High Income ISAs

High income ISA ideas:

ISAs Products

Cash ISAs

Fixed Rate & Instant Access ISAs:

Cash ISAs: 

Stocks & Shares ISAs

Types of Stocks and Shares ISA include: 

Stocks and Shares ISAs

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