Savers have been dealt a fresh blow as a popular Government-backed account has quietly cut its rates.
The changes affect those looking to lock away their money in fixed-term bonds, with new deals going on sale today.
The Treasury-backed savings provider NS&I has reduced interest rates on its fixed-term savings products, with the one-year bonds dropping from 4.18 per cent to 4.04 per cent.
The reduction applies to new issues of both Guaranteed Growth and Guaranteed Income Bonds, commonly known as British Savings Bonds, which became available today.
Approximately 180,000 existing bondholders whose investments are reaching maturity will be affected by the lower rates when they consider reinvesting their funds.
The Income Bond variant now provides 3.97 per cent gross with an Annual Equivalent Rate of 4.04 per cent, reduced from the previous 4.11 per cent gross offering.
These fixed-term products require a minimum deposit of £500 and permit investments up to £1million per person for each issue.
The new rates lag significantly behind market leaders, with Chetwood Bank currently providing 4.5 per cent on one-year fixed deposits and Atom Bank offering 4.4 per cent.
The new rates lag significantly behind market leaders
| GETTYA £10,000 investment in NS&I's updated one-year bond would generate £411.57 in interest, compared to £459.40 with Chetwood Bank's top-rated account.
Andrew Hagger, founder of personal finance website MoneyComms, described the NS&I rate as "disappointing when you look what else is out there."
He noted that even flexible savings accounts without withdrawal restrictions currently provide superior returns, with Kent Reliance offering 4.33 per cent and Spring providing 4.3 per cent on easy-access products.
Britons are looking for the best savings account deal | GETTYThe rate reduction follows NS&I's July launch of these bonds at 4.18 per cent, which already trailed behind market-leading offers at that time.
NS&I stated that the adjustments would assist in achieving its Net Financing target whilst maintaining equilibrium between savers' interests, taxpayer concerns and the wider financial services industry.
Customers who have already been sent their 30-day maturity notification will still receive the previously advertised rates of 4.18 per cent gross/AER for Growth Bonds and 4.11 per cent gross/4.18 per cent AER for Income Bonds.
The organisation has not disclosed the number of existing bondholders who have received these letters guaranteeing the higher rates.
NS&I; is slashing the Premium Bonds prize fund rate | NS&I; / GETTY These developments follow a period when NS&I attracted 225,000 savers with a 6.2 per cent one-year bond in July 2023, accumulating £10billion in deposits during what was described as a "stampede" for the attractive rate.
Despite the uncompetitive rates, wealthy savers may remain with NS&I due to its Government-backed security covering deposits up to £1million, far exceeding the £85,000 protection limit offered by other institutions through the Financial Services Compensation Scheme.
Hagger explained: "The people most reluctant to move from NS&I will be those with six or seven figure balances who would need to split their cash into £85,000 chunks with multiple providers to retain the security on their entire balance."
Around 80 per cent of savers who held the previous 6.2 per cent bonds rolled their investments into an exclusive 5.15 per cent offering last year, but now face significantly diminished returns regardless of whether they receive the 4.18 per cent or 4.04 per cent rate.