National Savings & Investments (NS&I) has dropped the interest rate paid on its fixed-term British Savings Bonds after the latest Bank of England base rate cut, having previously increased rates in November.
The new annual equivalent rate from both the one-year growth and income options now stands at 4.07%, down from the 4.2% on bonds issued in November.
Two-year bonds have dropped from 4.1% to 3.98%, while the biggest change comes for those looking to lock their money away for three years. The rate here has dropped from 4.16% to 4.02%.
Those looking to put cash away for even longer can get 3.98% on a five-year bond, down from 4.08% in November.
“Today’s changes reflect changes in the wider market and will help NS&I to meet its net-financing target while continuing to balance the interests of savers, taxpayers and the broader financial services sector,” the firm said.
British Savings Bonds come in two forms: Guaranteed Growth and Guaranteed Income. The former is a lump sum investment that earns a fixed rate of interest over a set period of time, while the latter pays out monthly income at a fixed rate.
Funds cannot be withdrawn early with fixed-term accounts, and savers need a minimum investment of £500. They can invest a maximum of £1m per person in each Issue. After the fixed-term period, savers will have the choice to withdraw their cash or reinvest it into a new term.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: "If you blinked, you’ll have missed higher NS&I bond rates, because just two months after they were boosted, they’ve been trimmed back again. This isn’t a surprise. The autumn and winter tend to see more fixed-rate accounts mature, so there’s always a risk that savers will take their money and leave. That was definitely a theme in September, when money was flowing out of NS&I.
"There’s every chance that this temporary boost was designed to stem the flow. There was actually a significant rise in savings in November, when £2.45bn was paid into NS&I, so now those higher fixed rates have done the job, cuts were in order."
The bonds are still offering more than they did before the November bump, she noted, but fall short of the most competitive deals on the market, which has "held up impressively in the face of the Bank of England rate cuts".
"You can get a better deal from some of the online banks and savings platforms, so it’s important to check what’s on offer before you tie your money up," she noted.