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Boost for savers as NS&I targets cash deposits

Savers are expected to benefit from higher rates on National Savings & Investment products after plans to raise investment in these government-backed accounts were announced in the Budget.

Chancellor Jeremy Hunt increased fund targets to £7.5bn on NS&I premium and savings bonds for the tax year 2023-24 to help the Treasury meet its borrowing requirements. NS&I is backed by the government so raising money via these products means cheap loans for the Treasury.

The £7.5bn target — up from £6.1bn in the current tax year — reflects NS&I’s requirement to balance the interests of savers, the taxpayer and the wider financial services sector.

Laura Suter, head of personal finance at AJ Bell, said: “There was good news for savers buried in the detail of this year’s Budget, as the government wants its savings provider NS&I to raise even more money in the next tax year.”

Advisers predict the move will result in NS&I making its products more attractive to savers by increasing the interest rates on offer. They also anticipate a boost to the premium bond prize fund to lure more savers.

Currently, premium bonds are offering their highest returns in over a decade, paying out an effective rate of 3.3 per cent, up from 3.15 per cent in February. Rates for its Income Bonds and Direct Saver accounts were also recently increased from 2.6 per cent to 2.85 per cent.

Historically NS&I does not typically offer market leading rates — so as not to distort the savings market — and once enough money has been raised NS&I reduces its rates again.

Suter said: “Generally, NS&I doesn’t want to lead the markets, but this goes out of the window if it needs to drag in more of savers’ money.

“This has a double boost for savers, as they can get higher rates with the government-backed provider but also it will spur other savings providers to increase their rates — hopefully marking the start of another rates war.”

The announcement comes at a time when the markets are jittery and individuals are searching for safe places to put their cash savings. Annual inflation in the UK is running at 10.1 per cent in the year to February but the Office for Budget Responsibility expects it to fall to 2.9 per cent by the end of 2023.

Christine Ross, client director at Handelsbanken Wealth and Asset Management, said: “Savers often accept a slightly lower interest rate in return for the added security of National Savings.”

This is a key part of the attraction of the state-backed bonds, which are 100 per cent guaranteed by the Treasury. Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “There will be some savers who don’t need NS&I to be the best rate on the market to be very attractive indeed.”

In other savings-related news the chancellor kept in place the maximum that can be saved into a tax-free Individual Savings Account (Isa) at £20,000 for 2023-24 despite soaring inflation. The limits on Junior Isas and Child Trust Fund accounts were also frozen at £9,000.

Similarly, those using a Lifetime Isa to help save for their first home were offered no movement on the £450,000 limit on the value of a first home bought with a Lisa, which includes a government bonus.

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