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National Savings & Investments slashes interest rates

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18/09/2008

National Savings & Investments (NS&I) is reducing the interest paid out on many of its fixed rate products by up to 0.75% as of today. The cuts have been triggered by a fall in the yields on gilts – Government bonds which have a direct impact on NS&I’s fixed rates.

Savers in the new 31st issue of Children’s Bonus Bonds will be hardest hit, as the annual interest rate over the five-year life of the bonds will fall by 0.75 percentage points to 3.7%.

Other new issues being launched today which will suffer a three-quarter point cut are the latest three-year and five-year Guaranteed Income Bonds, where the rate is reduced to 3.9%, and the three and five-year Guaranteed Growth Bonds, where the rate falls to 4.0%.

Existing savers will not be affected by any of these changes, but NS&I’s range now looks less competitive, with the best rival fixed rate accounts currently paying more than 7.0%, when NS&I is paying about 4.0%.

 Rachel Thrussell, head of savings at Moneyfacts, the financial research group, says:

“It’s disappointing that NS&I has lowered its rates by such a large amount but it has always priced itself in a different way from other financial groups because it takes much more notice of gilt yields.

“Right now this is driving its rates down and making it less competitive, but at other times things could work the other way.

“Also, despite the yield gap with its rivals, some savers will always be prepared to sacrifice some extra interest for the security of knowing their deposits are with an organisation which has the backing of the Government.”

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