Return on savings drops despite rates rise

National Savings & Investments today announced it was reducing the returns paid on its fixed rate savings products despite the recent rise in interest rates.

The Treasury-backed group blamed a fall in the rates paid on government bonds, or gilts, for its decision.

The move means interest paid on a five-year Fixed Interest Saving Certificate will fall by 0.2% to 3.45%, while interest on one of its two-year certificates will fall by 0.15% to 3.35%.

The returns on Children's Bonus Bonds will fall by 0.25% to 4.45%, while Pensioner Guaranteed Income Bonds will also see rates drop by 0.2%.

But the group also said it was increasing the interest on its variable rate products following the recent rise in the Bank of England base rate.

Returns on products such as its cash mini ISA and Easy Access Savings Account will rise by the full 0.25%.

At the same time the prize fund available for Premium Bond prizes will rise from its current level of 2.8% of the total amount invested, to 3% on October 1 and then again to 3.2% from December 1.

The group estimates the total monthly value of Premium Bond prizes awarded will have risen by nearly 20% from ?41.5m in January this year to ?61.8m in October.

It said people who had ?30,000 invested in the bonds, with average luck, could expect to win around 15 prizes a year.

John Prout, sales director at NS&I, said: "With present market conditions as they are, where the base rate has risen but gilts are falling, we are able to increase our variable rates, which is good news for people who have money in our Easy Access Savings Account, for example.

"The downward trend in gilts means some of our fixed rates must be reduced. However, we always price our offers fairly and consistently in line with movements in the market and if gilt yields rise again we would aim to increase our fixed rates."