NS&I update: Interest rates set to rise in coming months – boost your savings now

5 mins read


Specifically, financial analysts believe NS&I’s urgent need to raise more money for the Treasury is the prime reason interest rates are likely to soar in the next couple of months. NS&I is one of the means in which the Treasury raises money and hopes to acquire £6billion by April 2022. However as of April 2022, the financial institution had only raised £600million which suggests an interest rate hike may be on the cards to pull in more cash.

This means that a saver with this NS&I account lost an average of £60 over the year since the cuts were made.

Furthermore, savers with Direct Isas or NS&I’s cash Isas have witnessed £10.1million being lost over the previous 12 month compared to market averages. This equates to around £28 per saver.

At the time, Ian Ackerley, NS&I’s Chief Executive, outlined why the cuts were a necessary but difficult decision to make.

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Mr Ackerley explained: “Reducing interest rates is always a difficult decision. In April we cancelled interest rate reductions announced in February and scheduled for 1 May.

“Given successive reductions in the Bank of England base rate in March, and subsequent reductions in interest rates by other providers, several of our products have become ‘best buy’ and we have experienced extremely high demand as a consequence.

“It is important that we strike a balance between the interests of savers, taxpayers and the broader financial services sector; and it is time for NS&I to return to a more normal competitive position for our products.”

Speaking to The Telegraph, Anna Bowes, an analyst with Savings Champion, elaborated on why thinks an interest rate rise would be a likely, but potentially risky, endeavour for NS&I.

Ms Bowes said: “NS&I need to manage the amount they raise. If rates are too competitive the money could flood back, overwhelming them and raising far too much, as illustrated last year.”

Despite this concern, many financial experts believe an interest rate hike is crucial for maintaining the integrity of the institution’s product offerings and services.

Recent products from NS&I have been slammed for their measly interest rates, including the financial institution’s Green Savings Bonds which have a three year fixed interest rate of 0.65 percent.

Laura Suter, the Head of personal finance at AJ Bell, outlined why this is not good enough for savers at this moment of time.

Ms Suter explained: “The Government was always going to have a juggling act on its hands when setting the rate.

“Too low and it won’t attract enough customers to fund its green projects, but too high and many would question why it was paying so much to borrow money compared to raising money in the Gilt market.

“In the end it’s erred on the side of cheaper borrowing, presumably with the knowledge that it can increase the rate later if take-up is slow.

“Anyone signing up to a long-term fix needs to think carefully about what they think interest rates will do during that time.

“Many now expect a rate rise later this year and another next year, although this is by no means certain.

“But that would mean an uptick in savings rates too, in both the easy-access and fixed-rate market. If you lock money away now you’ll miss out on those potential increases.”



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