As of Monday, National Savings and Investments will be dropping its interest rates on its tax-free ISAs (Individual Savings Account) in a move that will dismay savers.
The Direct ISA will see its rates drop to 1.25% from 1.5%, it is estimated that over 400,000 NS&I savers will be affected by this change.
The level of 1.25% is now the lowest rate that the product has offered since NS&I introduced it in 2008.
The Direct ISA had been sitting pretty at the top of the best buy tables but has now fallen down the list due to the cut, which was announced in September.
The success of pensioner bonds in the earlier half of the year has meant that National Savings and Investments has been forced to cut its rates. This is because government legislation prevents them from attracting to much cash and destabilising the savings market.
The savings rates being offered across the ISA market have plummeted in recent times, despite the fact that the Bank of England has kept the base rate of interest at 0.5%.
TSB have announced that they will be cutting their rates as of 11 December and HSBC have also begun to send out letters, which will inform customers of an upcoming reduction.
BBC News are reporting that HSBC will be cutting its ISA rates to long-term customers to 1.3% from 1.5% as of January 2016. The bank commented saying that they had had to make a “difficult decision”. Currently their most profitable ISA, for savers, is the Loyalty Cash ISA. This will soon be cut and the lower paying accounts will be cut similarly.
According to the Bank of England the average amount that a saver could expect to earn on an instant access ISA was 1.09% in October 2014.
A year after that figure was recorded, the average had fallen to 0.98%.
In January, a section of the Funding for Lending Scheme will be brought to a close. Many experts believe that this change could improve the current climate in the savings market.
The director of Savings Champions, Anna Bowes, has said that she thinks that new customers will be able to benefit from this but many old customers may not see a positive impact upon their savings rates.
She went on to say:
“We can but hope that the providers involved will turn back to savers to raise the funds they require, which could see savings rates being pushed up”.
“Unfortunately we wouldn’t expect to see existing savers benefit from this.”
Most savings experts believe that many savers could benefit greatly from moving their money to other savers. Some providers, such as the Coventry Building Society, have increased the interest being offered on their individual savings accounts.
As a result of the changes many people are now turning away from individual savings account altogether to high interest current accounts as a way of getting a better interest rate for themselves.