New National Savings customers lose out

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New customers of National Savings yesterday became the latest victims of the fall in long-term interest rates as the interest offered on five-year savings was cut by up to 7 per cent.

New pensioner bonds, which had paid 7 per cent a year, will now pay 6.5 per cent. Children's bonus bonds bought now will pay 6.25 per cent, down from 6.75 per cent. Existing savings are unaffected. The cuts create a highly unusual situation in that savers can now get better interest when they put money away for a shorter period. Whereas pensioner bonds with a 5-year lock-in pay 6.5 per cent, income bonds, repayable on 90 days' notice, pay 7 per cent.

National Savings yesterday said it was forced into the cuts by the money markets. Short-term interest rates were up, but longer-term rates had fallen in anticipation of low inflation under a European single currency.

Peter Bareau, chief executive of National Savings, said: "Like other major retail providers, we have had to take action to reduce rates on our medium term products. The present reality for savers is that fixed medium term rates are lower than short term rates."

The move mirrors cuts by life insurers in the amount they pay in bonuses to endowments and pensions. Scottish Lifeyesterday became the fifth office to announce cuts in annual bonuses.