National Savings and Investments has revealed a bumper net financing target of £12billion in the Spring Statement, which means it is looking to rake in more of savers’ cash.
This follows a year of disappointment for savers in which NS&I has cut rates on popular accounts such as Premium Bonds and Income Bonds.
That came after it received a surge of cash when it offered a one-year Guaranteed Growth Bond paying 6.2 per cent in August 2023. That account signalled the top of the savings market, with rates offered by banks, building societies and fintech firms down since then.
NS&I has chopped the rate on its most popular product – Premium Bonds – four times since it peaked at 4.65 per cent between September 2023 and March 2024, bringing the rate down to 3.8 per cent from the draw next week.
It comes as the Bank of England base rate has come down to 4.5 per cent. NS&I has to position itself as attractive enough to rake in savers’ cash, but risks being swamped with money if it finds itself near the top of best buy savings rate tables.
NS&I’s previous net financing target was £9billion. The new net financing target, which comes with a £4billion buffer either side, is substantially bigger.
While at first glance, that might suggest better rates on offer from the Treasury-backed provider, one savings expert says the opposite is true.
Rate cuts? Despite a bumper financing target, it’s more likely NS&I will cut rates, according to Savings Guru James Blower
James Blower, founder of The Savings Guru, said: ‘The news NS&I has an increased financing target could excite savers hopeful of an increase in interest rates. However, there’s more likelihood it may have to cut rates.
‘NS&I’s target for the year is £12billion but they are allowed to operate within a £4billion range either way i.e. £8billion – £16billion.
‘In its most recent quarterly results, for the quarter to 31 December, it had grown £5.5billion suggesting it is running significantly above the run rate for even the top end of the range.
‘In February, it announced cuts to its Income bonds and Direct Saver to slow inflows. It also announced a cut to Premium Bonds to come into effect from 1 April.’
He added: ‘Premium Bonds are important because they account for just under 55 per cent of NS&I’s book. The past two months have seen more than £1billion flow in to Premium Bonds.
‘NS&I appears to still be growing reasonably strongly and on a trajectory that suggests it may be on course to hit its funding target without doing anything from here.’
James also warns that future cuts to the base rate will likely see savings rates fall across the market, meaning NS&I may need to act.
He adds: ‘The Bank of England is expected to cut base rate in May to 4.25 per cent.
‘NS&I is notoriously slow to change rates and my expectation is it could find itself more competitive again come May, if base rate is cut, and then have to announce further cuts to stem inflows.
‘Even if base rate is held, I cannot see a scenario currently which will lead NS&I to make any significant improvements to its current rates.’
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