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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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.
-
Barclays begins paying up to £100 compensation to customers after banking outageBarclays will pay up to £7.5 million in compensation to customers after its banking services were disrupted by an IT outage
-
Review: Shangri-La Paris – an ode to the world’s best foodNatasha Langan enjoys fine French and Chinese cuisine at the Shangri-La Paris
-
Premium Bond winners – who won the December £1 million jackpot?NS&I has unveiled December’s Premium Bond winners. Who bagged the jackpot and what other prizes are on offer?
-
NS&I cuts Premium Bond prize fund rate to 4%NS&I will reduce the Premium Bond rate from 4.15% to 4% in January, while also cutting the rates on other savings accounts. Are Premium Bonds still worth it?
-
NS&I to cut Premium Bond prize rate to 4.15%The odds of winning a prize will fall to 22,000 to 1 for the December draw, while NS&I is also slashing the rates on other savings products. We have all the details
-
Most Premium Bond holders never win – are they worth it?Premium Bonds There are over 20 million Premium Bond holders but most of us have never won a prize.
-
NS&I overshoots financing target - could we see more Premium Bond rate cuts?Are NS&I Premium Bond prize fund rate cuts on the horizon? An attractive one-year savings bond plus ever-popular Premium Bonds meant NS&I raised too much money for the government last year
-
July Premium Bond winners – did you bag the £1m jackpot?NS&I has revealed two lucky millionaires in the July draw. Did you win and how can you check for prizes?
-
One-year fixed savings drop below 6% - have they reached their peak?The best one-year fixed-rate savings deals have fallen below the 6% mark. Find out if saving rates have reached their peak and the current top rates on the market.
-
NS&I cuts interest rate on Green Savings Bonds - where can you get a better deal?News The state-backed bank has slashed the interest rate on its Green Savings Bonds from 5.7% to 3.95%
