The best savings deals as NS&I slashes rates and Premium Bonds prizes

The savings bank NS&I has this week been accused of shutting the door on UK savers after it slashed interest rates on a raft of accounts. Suddenly customers who have been enjoying market-leading returns face rates as low as 0.01%.

The scale of the NS&I (National Savings & Investments) interest-rate cuts stunned many commentators: for example, the return on its income bonds will plummet from 1.15% to 0.01%. As a result, someone with £1,000 saved in the account will receive 10p gross interest after a year. So, after more than 20 years, you might amass enough interest to buy a cup of coffee.

NS&I has also cut the chances of winning money on the premium bonds, which will affect about 24 million people.

So what are the best options for NS&! customers, and others looking for a half-decent savings rate?

Thankfully, it’s not all doom and gloom. Several savings accounts have been launched over the past few days, including one from NatWest that pays a market-leading 3% interest.

We have rounded up the products undergoing a rate cut and suggested some alternatives. All interest rates were correct at the time of writing, but things are moving quickly, so the Moneyfacts.co.uk website is a good place to go for the latest information.

Direct Saver

This is an easy access account offered by NS&I that currently pays 1%. From 24 November it will drop to 0.15%.

NS&I is also slashing the rate of its investment account, which lets you take out money with no notice or penalty but has to be operated by post. The rate will tumble from 0.8% to 0.01%.

The alternatives On Thursday, Coventry building society launched Double Access Saver (Online) (2), which pays a variable 1.1% interest. This is the replacement for a previous version paying 1.2% that was on sale for a few days before being withdrawn this week after “completely unprecedented” demand.

The minimum balance is £1 and the maximum is £250,000, and this account has limits on withdrawals. Savers can access their money twice a year with no charge, but any further withdrawals will incur a fee equal to 50 days’ interest on the amount withdrawn. So it will not suit everyone. But if it works for you, you should act fast.

Other decent easy access accounts include Internet Saver Plus Issue 7 from Yorkshire building society, which would particularly suit those with a larger sum to stash. It pays a variable 0.2% on £1-plus, rising to 0.65% for £1,000-plus, 0.95% for £10,000-plus, and 1% for £50,000 or more. This account allows unlimited withdrawals and can be opened online with a minimum of £1.

The digital bank Atom has just launched Instant Saver, paying a variable 0.75%. This has no restrictions or penalties – you can withdraw or add money as many times as you like on savings from 1p up to £100,000. New customers can apply by downloading the Atom app.

Income Bonds

These have been popular with those looking for a monthly income and easy access to their cash. NS&I calls them a “nice little earner”, but the trades descriptions people might have something to say about that when the rate cut comes into effect on 24 November.

The alternatives The Coventry’s Double Access Saver (Online) (2) account highlighted above also offers a monthly interest option – the rate is 1.09% gross per annum or 1.1% AER. This is a limited access account, but many people won’t be too worried about the limits on withdrawals.

Meanwhile, there are one-year fixed-rate accounts paying more than 1% that offer a monthly interest option. Aldermore Bank’s One-Year Fixed-Rate Savings Account pays 1.25% monthly interest. The minimum deposit is £1,000, maximum £1m.

Direct Isa

This NS&I cash Isa has been popular, but its rate will plummet from 0.9% now to 0.1% on 24 November.

The alternatives If you are moving cash from one Isa to another, the account you have chosen must accept transfers in. You can often request to transfer your existing Isa as part of the opening process for the new one. The accounts listed here all accept transfers in.

Skipton building society’s Cash eISA Saver Issue 6, launched on Thursday, pays 1%. The minimum deposit is £1 and it is described as easy access with no notice needed for withdrawals.

Coventry building society’s Triple Access Isa (Online) has a variable rate of 0.96%. The minimum balance is £1 and you can access your money up to three times a year without charge.

Internet Saver Isa Plus Issue 7 from Yorkshire building society pays a variable rate: 0.2% from £1, 0.55% from £1,000, 0.91% from £10,000, and 0.94% from £50,000. It allows unlimited withdrawals.

NS&I’s fixed-term savings products

In November, NS&I will also be making big cuts to the rates on offer for its fixed-term products: its guaranteed growth bonds, guaranteed income bonds and fixed interest savings certificates. The current ones all pay over 1%, but the new rates range from 0.06% to 0.55%.

These products are not on general sale and are only available to customers looking to renew an existing investment when it matures. People’s current products will be unchanged until they mature.

The alternatives With guaranteed growth bonds and guaranteed income bonds, you will not be able to access your money until the bond matures, while fixed-interest savings certificates can be cashed in early subject to an interest penalty. So these alternatives are for if you have new money to put in, or have come to the end of an account’s term.

At the moment, the highest-paying fixed-rate bonds from other providers are paying about 1.30% for one year to 1.5%-1.6% for five years. At OakNorth Bank you can earn 1.26% over one year on payments from £1. Locking in for five years will earn you 1.6% at Bank of London and the Middle East but you will need to deposit at least £1,000.

Junior Isa

NS&I’s pays a top-of-the-table 3.25% but this is being slashed to 1.5% on 24 November.

The alternatives With junior Isas, no withdrawals are allowed (except in very limited circumstances) until the young person turns 18, but you can transfer elsewhere at any time.

The Coventry’s Junior Cash Isa (1) pays a decent 2.95%, while Tesco Bank’s Junior Cash Isa offers 2.75%. Several providers are paying 2.5%.

Premium Bonds

NS&I is cutting the “prize-fund rate” from 1.4% to 1% from December, which means the odds of winning a prize with each £1 bond number will lengthen to 34,500-1. That compares with 24,500-1 currently. And there will be fewer higher-value prizes.

The alternatives There isn’t anything else out there quite like premium bonds, so you will need to decide whether you are happy to stay or want to bail out.

It will not win you a fortune but if you have a NatWest current account its new Digital Regular Saver might be worth channelling some money into. You can save between £1 and £50 a month, and it pays 3% on balances of between £1 and £1,000 (but just 0.01% on any amount above £1,000). You can withdraw your money at any time.