Synopsis: National Savings & Investments will cut rates on their Direct ISA from the end of February.

Date posted: Tuesday, December 10, 2013

One of the small surprises in the Autumn Statement was that the National Savings & Investments (NS&I) net financing target for 2013/14 was increased from nil to £2bn, albeit with a tolerance of £2bn either side.

The £2bn increase was little more than catching up with reality. To quote the Autumn Statement, ‘NS&I’s forecast net contribution to financing has increased from zero to £3.5 billion. Since Budget 2013, rates on NS&I’s products have been reduced while inflows have risen.’ The weekend press seemed to have missed this point, as did some of the banks and building societies moaning about the threat of greater competition from the government.

Seemingly to underline the point, NS&I announced today that it would be cutting the rate on its Direct ISA from 1.75% to 1.50% from 27 February 2014. The reduction will take NS&I away from almost the top of the league tables for instant access ISAs, but still leave them fairly competitive.

Looking further ahead, it is interesting to see that the Autumn Statement says ‘Given the increase in gilt yields over the same period, raising finance through NS&I is now comparatively more cost effective than through equivalent gilts..’. That might mean there is more leeway given to NS&I to raise capital in 2014, when the government will still have a net cash requirement of close to £100bn.


Don’t expect index-linked savings certificates to reappear anytime soon. Short dated index-linked gilts still have negative real yields (e.g. -0.90% for 1/8% Index-linked Treasury 2019), so even offering certificates with just inflation-linking and no bonus interest would be an expensive way to raise funds.

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