Savers dealt another blow as National Savings & Investments cuts its ISA interest rate

Hard-hit savers were dealt another blow today after Treasury-backed National Savings & Investments cut the interest rate on a popular ISA product.

More than 300,000 account holders have seen the rate on NS&I's tax-free Direct ISA savings account drop from 2.5% to 2.25% from today.

It represents more bad news for savers after reductions by a number of other banks and building societies in recent weeks and as pension savers suffer diminishing returns due to the Bank of England's money printing scheme.

NS&I, whose remit is to have rates which reflect but do not lead the market, said the move was in line with the wider trend for rates to be lower. Its Direct ISA rate has been unchanged since 2009.

Financial research group Moneyfacts said the £80 billion funding for lending scheme, which gives banks access to cheap funding, meant banks were no longer as reliant on the deposits of savers.

A spokeswoman said: "A lot of providers are reducing their rates on a number of products, also on fixed rates and variable rates. Nobody is wanting to be the best buy unfortunately."

Moneyfacts said the current average ISA rate was 2.18%.

In August NS&I said it had overshot its target for net financing - the amount of money left over for the Government after withdrawals and interest payouts - after a small number of customers placed large amounts in accounts and people had not taken money out as expected.

Unlike banks and buildings and societies which are only covered for up to £85,000 by a scheme to compensate customers, the savings and investment company is able to guarantee 100% of deposits because it is backed by the Government.

Simon Rose, spokesman for savings campaign group Save our Savers, said: "It is appalling if you are trying to live off your savings.

"Everything at the moment is working to take money from those who have got some, but we are not seeing any financial benefit."

The interest rates on NS&I's other savings products remain unchanged.

PA