The exodus of savers means NS&I is short of the target it is asked to raise for the government each year.
Savers unimpressed by interest rate cuts pulled £6.3 billion from National Savings & Investments (NS&I) accounts in a single month.
The exodus occurred in November, according to Bank of England figures, after NS&I announced in September that it was cutting the rates on many of its top deals to rock bottom.
Another £2.7 billion was withdrawn in December. With more modest amounts also taken out in October, the total pulled from NS&I in the third quarter of its financial year was £9.5 billion.
From 24 November, interest rates on NS&I’s Direct Saver, Investment Account, Income Bonds, Direct ISA and Junior ISA were all cut.
Interest on the Direct Saver fell from 1% to 0.15% and for the Investment Account from 0.8% to 0.01%.
Meanwhile, the rate on Income Bonds dropped from 1.15% to 0.01%, the Direct Saver ISA from 0.9% to 0.1% and the Junior ISA from 3.25% to 1.5%.
The flight of NS&I savers has caused a headache for the financial giant, with some of its 25 million customers struggling to access their accounts and move their money to higher interest rate deals.
NS&I had to put a banner on the homepage of its website saying, “We’re sorry if you’ve had trouble getting in touch recently. We’re working hard to get everything back on track”.
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Mel Stride, chair of the Treasury Committee, which looked into complaints about poor service from NS&I, said: “An exodus of savers from NS&I when it cut interest rates in November was foreseeable and so it is disappointing that the average time to answer a customer’s call was 19 minutes that month.
“The damage that may have been done to NS&I’s reputation over the last few months is worrying. NS&I has a big role to play in helping the government fund the costs of the coronavirus recovery scheme and it will need to work hard to win back customers.”
The exodus of savers means that NS&I is now £6.2 billion short of its funding target – the amount it is asked to raise for the government each year. This target had been increased to £35 billion, from just £6 billion in July 2020, when NS&I looked more attractive to savers.
In the first half of NS&I’s financial year (April to September), savers moved £38.3 billion into NS&I products, which at the time provided market-beating rates – before being cut.
“If money continues to haemorrhage from NS&I, they could be in a position where they have to increase rates once more to attract money back in, in order to hit their target by the end of March this year,” according to Anna Bowes of Savings Champion, which monitors rates.
But she added: “even if they did raise rates, it’s not likely they would be terribly competitive as they would not want to repeat the huge influx that they saw in the earlier part of 2020”.
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Flows into other savings accounts rose to £20.9 billion in December, up from an already staggering £18.4 billion in November.
According to the Bank of England, in total there is almost £1.6 trillion in household cash deposits.
This is in addition to what is still being held in NS&I accounts. Some £225 billion of this is sitting in non-interest paying accounts.
According to Savings Champions’ calculations, if this money was earning just the average easy access rate of 0.25% then £562 million of interest is being lost.
“If it was moved to the best easy access account, it could be earning double this,” Bowes pointed out.
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