NS&I boosts ISA interest rates

(Image credit: © Getty images)

published 16 May 2023

The government-backed National Savings & Investments (NS&I) has bumped up the interest rates on its cash ISA following last week’s base rate increase to 4.5%.

NS&I Direct ISA customers can now earn 2.4% on its cash ISA account - up from 2.15%.

While the increase will be welcomed by customers, NS&I’s ISA rate is still lagging behind its rivals - see our article on the best cash ISA rates to see what other providers are giving.

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NS&I says the change brings its Direct ISA in line with other easy-access ISAs available on the market, thought it's not necessarily the best.

“The change made to NS&I’s Direct ISA will ensure that the product is priced appropriately when compared to the rest of the ISA market. It will also help ensure that NS&I continues to balance the interests of savers, taxpayers and the broader financial services sector,” the savings outfit notes.

The NS&I ISA rate was last upped in February alongside a number of other NS&I products, including Income Bonds and the prize rate on its popular Premium Bonds.

Is the easy access NS&I direct ISA a good deal?

If you like the security that come with NS&I - which is that it guarantees to protect any money saved in its products as it is backed by the Treasury - then NS&I is certainly a good choice.

But, if you are simply looking to get the best return in your cash ISA, then you can do better than NS&I, depending on your requirements.

For example, you can currently earn 3.5% with Cynergy Bank’s easy access ISA, which like NS&I, can also be opened with just £1.

And Shawbrook Bank’s easy access lets you earn 3.45% - but you will need £1,000 minimum to open the account. You can find all the latest ISA rates in our article on the best cash ISAs.

And although other banks offer protection from the Financial Services Compensation Scheme for up to £85,000 of your savings, they do not come with the unlimited guarantees that NS&I does.

Sarah Coles, head of personal finance at Hargreaves Lansdown says the product is “trailing well behind the market,” although it is “well ahead of the high street giants”.

However, the headline rate of 2.4% is “nothing to get excited about,” she notes.

“It’s not only lagging the most competitive deals by a significant margin, it’s also well behind the 2.85% on offer on its other easy access products.”

Coles says the upped rates on the ISA may appeal to those with “significant savings” beyond the £85,000 guaranteed by the FSCS.

“However, for those holding less than £85,000 with any one savings institution, there’s the FSCS to protect them, so the gap between this rate and the rest of the market may be big enough to make them think twice,” she says.

Why do savers like NS&I?

NS&I is not renowned for its sky-high rates, rather it attracts customers with its promise to guarantee your money. Not only that, but its millionaire-making Premium Bonds are hugely popular, with savers drawn to the security offered in parallel to the chance to win a life-changing amount of money.

In February, £2bn was deposited with the government-owned savings bank after the collapse of Silicon Valley Bank rattled the nerves of investors across the globe.

Every month Premium Bond holders are entered into a draw where they can win prizes ranging from £25 to £1m. This month, two savers were made millionaires by the Premium Bond draw.

One lucky bond holder has won a grand total of 288 prizes, including the lucrative million-pound top prize. On top of the £1m reward, they have also won one £10,000 prize, one £1,000 prize, eight £100 prizes, 45 £50 prizes and 232 prizes worth £25.

Recently, NS&I has been upping rates across the board while introducing new products. In February it increased the Premium Bonds prize fund rate from 3.15% to 3.30% and brought its Guaranteed Growth Bonds (4%) and Guaranteed Income Bonds (3.9%) back on sale with higher rates.

The same month, NS&I launched a fourth Issue of its Green Savings Bonds account at a fixed rate of 4.20% gross/AER over a three-year term.

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Tom is a journalist and writer with an interest in sustainability, economic policy and pensions, looking into how personal finances can be used to make a positive impact. He graduated from Goldsmiths, University of London, with a BA in journalism before moving to a financial content agency.

His work has appeared in titles Investment Week and Money Marketing, as well as social media copy for Reuters and Bloomberg in addition to corporate content for financial giants including Mercer, State Street Global Advisors and the PLSA. He has also written for the Financial Times Group.

When not working out of the Future’s Cardiff office, Tom can be found exploring the hills and coasts of South Wales but is sometimes east of the border supporting Bristol Rovers.