The government-backed agency is pulling its 1-year and 3-year Guaranteed Growth Bonds and Guaranteed Income Bonds with immediate effect.

It has also cut the rate on existing Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates by 0.25 per cent.

Savers who have a bond maturing on or before 5 October will get the old, higher rate if they roll over into a product with the same term.

NS&I said the changes were down to rates for similar competitor products falling as well as “exceptionally low gilt yields”.

Jill Waters, retail director at NS&I, said: “It is important that NS&I continues to balance the needs of our savers with taxpayers and the stability of the broader financial services sector.”

The news will come as a blow to customers who choose NS&I because of the 100 per cent government guarantee and the ability to roll deals over.

In June last year, NS&I slashed the maximum deposit on its growth and income bonds from £1m to just £10,000. Customers are able to roll over the full amount they hold into a new product.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “NS&I isn’t doing this for nefarious reasons: it’s caught between a rock and a hard place.

“When the government is weighing up whether NS&I is doing a decent job, it compares how much interest it pays to attract savers against how much it would cost to raise the money by issuing bonds instead.

“At the moment, the enormous uncertainty in the market means investors want bonds, and are willing to accept low yields in return, so raising money by issuing bonds is relatively cheap. It means NS&I is under pressure to raise money more cheaply by cutting the rate.”

The new rates

Guaranteed Growth Bonds

1 year   1.25%

2 years  1.45%

3 years  1.7%

5 years  2%

Guaranteed Income Bonds (gross)

1 year   1.2%

2 year   1.4%

3 year   1.65%

5 year   1.95

Fixed interest savings

2 year   1.3%

5 year   1.9%