Savers forced to turn to NS&I after ‘devastating’ month of rate cuts and Marcus shutting its doors
- The average easy-access savings rate has plummeted to a record low of 0.27%
- Marcus Bank axed its top rate last week and others followed suit with cuts
- It means the Treasury-backed bank now offers the last refuge for savers – paying 1.15% on its Income Bonds and 1% on its Direct Saver
Savers are flocking to government-backed National Savings and Investments (NS&I) after suffering a ‘devastating’ month of rate cuts.
In just three months, the average easy-access rate has plummeted from 0.6 per cent to a record low of 0.27 per cent.
One of the biggest blows came last week when Goldman Sachs closed its market-leading Marcus account to new customers.
Sinking feeling: In just three months, the average easy-access rate has plummeted from 0.6 per cent to a record low of 0.27 per cent
Within hours of the announcement its competitor for the top spot, RCI Bank, slashed its Freedom Account rate from 1.05 per cent to 0.9 per cent.
The moves follow other cuts to best buys. Virgin Money now pays new savers 0.75 per cent, down from a previous 1.01 per cent.
Kent Reliance has reduced its rate from 1 per cent to 0.7 per cent, while Family BS’s Online Saver is set to fall from 1.06 per cent to 0.61 per cent next week.
Rachel Springall, finance expert at Moneyfacts, says: ‘This is devasting news for savers who are already struggling to secure a decent return on their hard-earned cash. And we may see rates drop even lower in the months to come.’
Average one-year fixed rates have also tumbled from 1.15 per cent in March to just 0.82 per cent.
It means both easy-access and one-year bond rates are now at the lowest they have been since analysts Moneyfacts’ records began in 2007.
Some new banks — such as Aldermore, Secure Trust, Ford Money, Investec and Wyelands — which regularly offer top rates, have withdrawn from the bond market completely.
New banks do not want to attract more money because they have enough to fund their current level of lending. But this has led to a dampening of competition and pushed down rates for savers.
Big banks are also paying a pittance — typically 0.01 per cent on easy-access accounts or between 0.3 per cent and 0.45 per cent on one-year bonds.
Among the worst is TSB at 0.3 per cent and Co-op Bank and Santander at 0.35 per cent. Last week Lloyds and Halifax launched a two-year fixed-rate bond at a miserly 0.3 per cent.
The downward spiral has placed NS&I at the top of the best buy tables. So savers with its fixed-rate Guaranteed Bonds should stick with the government-sponsored deposit taker if they are happy to tie up their money again.
The bonds are not on general sale, but those with maturing bonds can reinvest in them if they choose.
They pay 1.1 per cent fixed for one year, 1.2 per cent for two, 1.3 per cent for three and 1.65 per cent for five years as long as you pick the same term.
Among its accounts with a variable rate of interest, Income Bonds (popular with pensioners) pay 1.15 per cent.
The account differs from an ordinary one as interest is automatically paid into your bank account each month.
NS&I’s easy-access Direct Saver pays 1 per cent and its Direct Isa 0.9 per cent. Both can be opened over the phone or online.
Unfortunately, you cannot transfer in other Isa cash. And it is not a flexible Isa, so if you have already put in your full Isa allowance and take money out, you cannot replace it.
NS&I says it is getting more calls than usual so you should expect a longer wait to get through. Savers are encouraged to go online if possible.