NS&I savings cut 'could see banks following suit'

Savers could be facing a fresh round of cuts to their interest rates, Scottish Friendly has warned.

The Government-backed National Savings and Investments (NS&I) has reduced the rate paid on its Direct ISA from 1.5% to 1.25% in a move that will affect around 400,000 savers.

It represents the lowest rate NS&I has offered on the tax-free account since it was launched it 2008.

Scottish Friendly savings expert Calum Bennie believes the move could trigger a round of similar rate cuts at other savings institutions.

"Given the Bank of England has recently indicated the outlook for interest rates remains stubbornly low, today's NS&I rate cut is not unexpected but will be disappointing for savers and is yet another blow to cash ISAs," he said.

"This cut by a Treasury-led provider makes it likely that others will follow suit."

Mr Bennie added that savers could be set for "at least a further year of dismally low interest rates".

Last month, research from the Bank of England highlighted how returns on tax-free savings had already fallen to their lowest level since comparable records began in 2011, and this latest move is only likely to drag rates lower still.

And with the Bank warning earlier this month that the base rate could remain at its record low level of 0.5% until 2017, any improvement to savings rates could be some way off.