As £3.5bn pours into NS&I, this may NOT be time to follow the crowd

National Savings & Investments has finally increased the interest it pays on its Isa account – but don’t be fooled, the rates are still behind others. And while the state-backed bank increased its prize money for Premium Bonds at the beginning of the year, it has made no further improvements since then.

Premium Bonds are by far the most popular savings deal in Britain, but savers can find better rates elsewhere, experts say.

And don’t wait for big rate hikes in the near term, as NS&I is currently under no pressure to improve its deals, says James Blower, founder of savings website Savings Guru.

Savers deposited £3.5bn into NS&I accounts in March alone – nearly double the amount deposited in February – after NS&I made three major changes that gave savers more incentive to invest.

The first change this year was an unprecedented increase in the number of prizes on offer from £100,000 and £50,000. These are the biggest prizes paid out after the two £1 million jackpot wins available each month. As always you can invest from as little as £25 all the way up to £50,000 and not risk losing your stake – it’s fully protected by a Treasury backed guarantee.

The second major change is an increase in the prize money percentage for Premium Bond savers, improving the chances of every £1 winning a prize every month.

Third, in February, NS&I launched a new issue of its Green Savings Bond with a fixed interest rate of 4.2 per cent over three years, while relaunching its Guaranteed Growth Bond to new customers – who paid 4 per cent on its one-year fixed interest. rate deal. These increases proved enough to attract savers, with £5.5bn pouring into NS&I accounts combined in February and March.

By contrast, households raised £4.8bn from banks and building societies in March as they funneled money into NS&I and fixed rate deals.

It is also thought that recent global bank failures coupled with the limited protection offered by the Financial Services Compensation Scheme (FSCS) may have played a role.

The FSCS protects those depositing money with a bank or building society, but only up to £85,000 per person per institution.

Blower says this unrestricted protection from NS&I is enough to ensure that its products will always remain popular.

He says: ‘Savers are protected for 100 percent of their savings with NS&I. And that is especially attractive for high savers who do not fall under the FSCS or who have too much to spread over several banks.’

NS&I can therefore attract savings, despite a large backlog on the best-buy tables.

On Tuesday, it raised the rate on its easily accessible Direct Isa from 2.15 to 2.4 percent.

Still, this is clearly a little off the pace of best-buy savings accounts. Tax-free savers can get 3.51 percent elsewhere.

Anna Bowes, of rate controller Savings Champion, says last week’s increase was ‘disappointing’.

Easily accessible savings rates in the broader market have risen much faster. The best rates all now pay more than 3.5 percent, while the market-leading deal currently pays 3.71 percent.

And savers can get up to 5 percent if they’re locked into a flat rate for a year.

NS&I is also under fire for poor customer service.

Frustrated customers have expressed their anger and last month an investigation by The Mail on Sunday and our sister publication Money Mail revealed a host of problems at NS&I.

These include putting customers on hold and then cutting them off, not allowing customers to close accounts for weeks, and rejecting applications for Premium Bonds without explanation. The government has tasked NS&I with raising £7.5bn from depositors over the next 12 months, albeit in a range of £4.5bn to £10.5bn.

In April alone, the first month of the new financial year, NS&I raised £700 million in Premium Bonds, a pace at which it would exceed its target if maintained, Blower noted.

But he added: “However, we suspect it is still seeing significant withdrawals from its other savings products due to poor rates and customer service issues.”

With easily accessible rates expected to continue to rise and fixed rates offering the highest returns since 2009, NS&I could still be forced to raise rates again, he says, adding easily accessible savings rates, and if you look at savers with £50,000 invested in Premium Bonds, which with average luck get prices equivalent to 3.3 per cent in interest, are a long way off for most.

So NS&I could raise rates again in the coming months to keep up, but don’t hold your breath.

“In normal circumstances, NS&I would see inflows during times of concern, but we feel it has made such a mess of its customer service since the pandemic that it will be difficult to regain the trust of depositors.”