NS&I announces rate boost for Isa savers

Savings giant NS&I has boosted the rates on some of its Isa products – including deals for young savers.

The interest rate on its Junior Isa has increased from 2.50% to 3.25%, while the interest rate paid on its Direct Isa has increased from 0.75% to 0.90%.

The Treasury-backed provider, which has 25 million customers, has a duty to balance several different interests when setting rates.

It said the rate increases follow the changes in the Isa market, which has seen a recent pick-up, and balances the interests of its savers, the taxpayer and the stability of the broader financial services sector.

It said the increase to the interest rate on the Junior Isa reflects NS&I's aim of attracting younger customers and inspiring a stronger savings culture.

Jill Waters, retail director, NS&I, said: "We want to ensure that NS&I is front of mind to our customers when making savings decisions, and these improved interest rates ensure that we are providing a fair rate, while guaranteeing that their money is 100% secure.

"Our Junior Isa offer gives parents and guardians a simple and straightforward way to invest for their children, at a competitive rate of interest.

"This will help their children build a nest egg that they can then take forward into adulthood."

Rachel Springall, a finance expert at Moneyfacts.co.uk, said the Isa market has seen some improvement recently, as providers look to attract savers as a new tax year approaches in April.

She said: "It's fantastic to see NS&I increasing rates on both its Direct Isa and Junior Isa in response to a general improvement of the Isa market.

"Savers may well want to invest with a trusted brand with Government backing, and whilst the Direct Isa will now pay 0.90%, there are Isas within the best buys paying more."

She highlighted a deal from Tesco Bank, which pays 1.44% on an instant access cash Isa.

Ms Springall continued: "If savers are prepared to limit withdrawals, Virgin Money pays 1.45%."

She also cautioned that despite some recent improvements to the Isa market, savers wanting an easy access account may find a better rate if they look outside Isas.

She said the introduction of the personal savings allowance in 2016 has affected the Isa market, where savings pots are ring-fenced from the taxman.

Basic rate taxpayers can earn up to £1,000 in savings income tax-free – without needing to keep their money in an Isa.

Sarah Coles, a personal finance analyst at Hargreaves Lansdown, said: "This is great news for parents looking for a home for a cash Jisa (Junior Isa).

"NS&I is a much-loved institution, and because funds are 100% guaranteed by the Government, they know they can put their faith in it for their children's savings.

"It's always worth bearing in mind that because they provide a nest egg at 18, Jisas are usually long-term investments.

"If you're putting money away for more than 10 years, it's vital to consider whether cash is the right approach, because while stocks and shares will face short-term rises and dips, over the long term it has more potential for growth."