NS&I fails to keep up

The state-backed bank is popular, but there are better rates on offer elsewhere for savers, says Ruth Jackson.


Mark Carney's rate increase hasn't reached NS&I
(Image credit: 2018 Getty Images)

The state-backed bank is popular, but there are better rates on offer elsewhere for savers.

Savers with National Savings & Investments (NS&I) have been left disappointed after the government-backed bank decided not to pass on the full 0.25 percentage point rise in last month's increase to the Bank of England's base rate.

From next month, the interest rate paid on NS&I's Income Bonds will rise from 1% to 1.15%, while savers with an Investment Account will get a rate rise from 0.7% to 0.8%, and the Direct Savers rate goes from 0.95% to 1%. As for the ever-popular Premium Bonds, the prize-fund rate remains unchanged.

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The problem for NS&I is that the government has cut its funding target to a five-year low (this limit is in place so that it doesn't dominate the savings market). This means that NS&I can't attract too much cash, and so doesn't offer market-beating rates. In turn, there is less pressure on high-street banks and building societies to compete for customers by offering better deals of their own.

In the past, savers have flocked to NS&I for the combination of reasonable rates and complete security, but the failure to pass on the rate rise means you can find better returns elsewhere. You might want to look at Coventry Building Society's Limited Access Saver instead. This comes with an interest rate of 1.4% higher than the rate offered on any of NS&I's easy-access accounts. Just be aware that you are limited to three withdrawals per year. Alternatively, Birmingham Midshires pays 1.35%, and allows unlimited withdrawals.

A top savings rate of 1.4% is "pretty pathetic", but it won't get better unless the government acts, says Victoria Bischoff in the Daily Mail. The government is still borrowing around £40bn a year. "Couldn't it shift the balance so it borrows more from the nation's savers and [flogs] fewer government bonds to the markets?"

If what you're looking for is an account that pays a decent amount of interest but still allows you to draw on your cash if you need to, you might want to consider opening up a new current account instead. Just be aware that you'll have to arrange for the required number of direct debits and minimum monthly deposits. Nationwide pays 5% on up to £2,500 for the first 12 month, while Tesco pays 3% on up to £3,000. Or, if you are able to lock your cash away for 12 months, consider a one-year fixed-rate account. OakNorth pays 2.03%, with a minimum deposit of £1,000, while Paragon Bank pays 2.02%, which comes with the same minimum.

Court win may alter benefit rules

A court victory in Northern Ireland could pave the way for unmarried parents to get the same benefits as married couples if one dies. The Supreme Court has ruled that Siobhan McLaughlin, an unmarried mother of four, is entitled to receive the Widowed Parent's Allowance after the death of her partner.

The means-tested benefit is for parents with dependent children whose partner has died, but at the moment it is only paid if the parents were married. McLaughlin successfully argued that the current law breaches the Human Rights Act because it discriminates on the basis of marriage. She had lived with her partner for 23 years before he died.

The decision puts pressure on the government to change the law, says The Sunday Telegraph. Although the Department for Work and Pensions said there would be no automatic change, it will "consider the court's ruling carefully". More than 2,000 families are refused the allowance every year owing to the marriage requirement, according to the Child Bereavement Network.

Pocket money TSB trips up again

Hundreds of Aviva customers had their pensions underpaid for years when successive pension companies failed to spot problems with their guaranteed annuity payouts. Now, to add insult to injury, Aviva is only offering "cut-price compensation at a fraction of what the industry referee says is fair", says Laura Miller in The Sunday Telegraph.

Pensioners are being repaid by Aviva three years after it became responsible for the problems. But the pensions giant is only offering interest at bank rate plus one percentage point compound interest on the missing money. That is considerably less than the 8% a year simple interest the Financial Ombudsman Service can demand that companies pay back.

Customers who "weathered the storm" of TSB's IT crisis earlier this year were locked out of their bank accounts again over the weekend, says Sam Meadows in The Daily Telegraph. The cause of the outage is still under investigation, while the Financial Conduct Authority is already looking into TSB's handling of the problems earlier in the year. TSB customers are also being warned to check their credit scores by Lucinda Borrell of MoneySavingExpert.com.

The bank has admitted there were delays updating the three UK credit agencies following the IT problems. This means some customers' credit scores could be out of date, affecting their ability to borrow money.

Holidaymakers are being refused full protection for luxury trips, says Ali Hussain in The Sunday Times. Most insurers offer between £5,000 and £10,000 per person cancellation cover because of illness, injury or the death of a close relation. But very few if any will cover much more than that, despite the fact that more and more people are going on expensive luxury trips. Insurers may be reacting to a sharp rise in the cost of covering claims, says Hussain. Last year, about £145m was paid out on 174,000 claims for cancelled trips, according to the Association of British Insurers up from 159,000 claims in 2016.

If you are going on an expensive trip and struggling to find cover, contact a specialist broker via the British Insurance Brokers' Association, whose website is Biba.org.uk.

Ruth Jackson-Kirby

Ruth Jackson-Kirby is a freelance personal finance journalist with 17 years’ experience, writing about everything from savings and credit cards to pensions, property and pet insurance. 

Ruth started her career at MoneyWeek after graduating with an MA from the University of St Andrews, and she continues to contribute regular articles to our personal finance section. After leaving MoneyWeek she went on to become deputy editor of Moneywise before becoming a freelance journalist.

Ruth writes regularly for national publications including The Sunday Times, The Times, The Mail on Sunday and Good Housekeeping among many other titles both online and offline.