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National Savings & Investment (NS&I) has raised its Direct Isa rates, but the news is bittersweet for savers, as the deal still pays less than six months ago.
This week NS&I raised rates on its Direct Isa from 0.75pc to 0.9pc. But just six months ago the Direct Isa paid 1pc.
NS&I cut the rate on the deal from 1pc to 0.75pc in September.
The Direct Isa is easy access and can be opened with just £1. But the 0.9pc rate paid by NS&I lags behind seven equivalent Isas that pay savers more.
The best rate is 1.35pc, paid by Paragon Bank for its easy access cash Isa.
Rachel Springall, of Moneyfacts, the financial expert, said NS&I aims to offer a reasonable return, but that “the word ‘reasonable’ is something that does need to be underlined many times over”.
NS&I has a lot to consider when deciding how much its deals pay the public.
It is state backed, so if any of its customers lose money the taxpayer picks up the bill.
Most other savings accounts are protected by the Financial Services Compensation Scheme up to £85,000.
NS&I normally offers a rate that is reasonable, but not the best, in case it attracts a tsunami of savers and creates a possible large liability for taxpayers.
It also cannot offer rates so good that private sector banks are at an unfair disadvantage.
HM Treasury also orders NS&I to raise a set amount every year, which factors into the rates it pays customers.
If the Government needs to raise more money NS&I can be more competitive on rates, and vice versa.
An NS&I spokesman said: “The decision to increase the interest rate on Direct Isa follows changes in the Isa market and balances the interests of our savers, the taxpayer and the stability of the broader financial services sector.”
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