Thousands of savers with NS&I will earn less interest from November after it announced it would be cutting the rate paid on its Direct Isa.
The instant access savings account currently pays 1.5% on balances, but this will be reduced to 1.25% from 16 November.
The government-backed organisation said it had reduced the rate on the tax-free account to bring it in line with other providers.
NS&I, which has restrictions on how much money it can take in each year, has faced criticism from banks and building societies who have struggled to compete with its rates.
It said that in making the decision to cut it had to balance several interests. Jane Platt, NS&I chief executive, said: “Interest rates in the easy access ISA market have been in decline over the year, and our Direct Isa rate has stood out at the top of the best-buy tables for some time.
“To ensure that we continue to strike a balance between the needs of our savers, taxpayers and the stability of the broader financial services sector, we have taken the difficult decision to reduce the rate on our Direct Isa.”
Latest figures show 404,210 savers hold a Direct Isa, and the account is still open to new customers.
Unlike other savings providers, customers with NS&I have all of their deposits guaranteed by the government.
Sue Hannums of website Savings Champion said this made the accounts attractive, particularly with the amount covered by the Financial Services Compensation Scheme set to fall to £75,000 at the end of the year.
Hannums said rates had fallen across the instant access market, with banks and building societies competing instead on fixed-rate Isas.
“There are accounts round paying 1.5%, so you can get a better rate,” she said. “But the [NS&I] account will still be popular because it is not dreadfully uncompetitive and people love NS&I.”
