Can our love affair with NS&I survive today’s rate cuts?

The country’s biggest savings firm is taking an axe to many of its rates, but its reputation alone may keep customers on board.

If little green men from Mars ever visit Earth, the continued British obsession with National Savings & Investments (NS&I) is one of the things they will find hardest to understand.

But can that obsession continue? Today the provider cut rates by up to 99% on its Premium Bonds, Direct Saver, Investment Accounts, Income Bonds, Direct ISA and Junior ISA deals. 

This matters because NS&I stands astride the savings landscape like a Colossus. It is hard to overestimate what a massive role it plays. It is the country’s biggest savings provider by a long shot, though exact comparisons are hard as its rivals rarely reveal their own deposits.

But why we love it so much is hard to actually explain.

Jack-of-all-trades, master of none

The provider was set up in 1861, and ever since its main attraction was that savers’ cash is totally safe unless the country runs out of money, as it is backed by the Treasury.

But for 20 years now that attraction has steadily lessened. In 2001, the Financial Services Compensation Scheme (FSCS) was set up, and now promises that customers’ cash is safe up to £85,000 for any regulated savings provider.

Neither can we love NS&I because it pays the best rates. In fact, it is duty-bound not to. 

The savings provider has to strike a balance between paying savers enough to keep them interested, while not distorting the market by outgunning banks.

• NS&I to cut rates on accounts holding billions of pounds
• Savings rates already dropping after Bank of England decision

So NS&I normally offers deals that are decent but not great. It rarely features in the best buy tables that are instrumental when savers hunt for which product to pick.

The slight caveat here is that during the summer NS&I did indeed rule the best buy tables – or certainly did for easy access accounts and one-year fixed-rate bonds, two of the most popular deals.

At one point, the top three easy access deals were all NS&I, as was the top one-year bond, though it has now been overtaken and does not feature at all.

Sometimes we accept lower savings rates than we could get elsewhere because the provider is cool, such as the millennial favourite Monzo – but cuddly old grandad NS&I cannot claim that either.

Some of us accept low interest rates out of convenience, often because we hold cash with the bank that runs our current account and can’t be bothered to take out a new savings deal. But that doesn’t apply to NS&I either, as it doesn’t have a current account and its deals must be actively applied for.

On that note, its customer service is not a big draw either. While the pressures of Covid-19 have taken an understandable toll on its ability to handle consumer issues, the company was not great before, and freely admits this.

Why would anyone bother?

The level of our affection for NS&I is truly mystifying when you look at it logically. But that’s precisely because our attraction to the provider is not logical. It’s like having a much-loved old jumper that is getting a bit worn but that you will never bring yourself to throw away.

We like it because of the fuzzy feeling we get from using it, which is a point often lost in the obsessive focus on rates when talking about savings. In an increasingly uncertain world, NS&I stands for trust, security, longevity, reliability.

And despite everything I’ve said, I am certainly not immune - I am a long-standing NS&I customer, and recently bought more Premium Bonds. 

• NS&I’s motto of ‘Saving. Nothing more’ rings true for millions
• Are you keeping too much in cash?
• Take control of your retirement planning with our award-winning, low-cost Self-Invested Personal Pension (SIPP)

To me, the monthly bond draw is good fun and offers a chance of winning a life-changing sum of money. If you change your mind you can cash out, get all your money back and have only sacrificed the potential interest you could have earned if you put your money elsewhere. 

Premium Bonds also pay “interest” of around 1% a year if you have average luck, which is not to be sniffed at.

Additionally, despite the FSCS it remains the safest place to put your money, and its products are frequently valued as gifts that older family members give to younger loved ones. And in a low interest rate environment where good savings rates are rare, many will not be concerned that NS&I isn’t top of the pile.

So this is why I think NS&I’s position will continue unscathed despite its latest rate cuts. It might not always be competitive, but for many savers NS&I has become like family and worthy of unconditional love – much to the dismay of its rivals.

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