National Savings & Investments (NS&I) has been steadily cutting its interest rates in recent months.
Established in 1861 by Chancellor of the Exchequer William Gladstone as the Post Office Savings Bank, NS&I has a long history of managing savings for the public.
As of 30 September 2024, NS&I reported holding £233.9 billion in investments. While this figure may seem substantial, it pales in comparison to the enormous financial challenges facing the government. According to the Autumn 2024 Budget, the projected Central Government Net Cash Requirement for 2024/25 stands at £165.1 billion, with an additional £139.9 billion needed to service maturing government debt. Together, this creates a funding gap exceeding £300 billion.
In this context, the total funds managed by NS&I—accumulated over more than 160 years—would cover just nine months of government financing.
In other words, the entire stock of NS&I, accumulated over 163 years, would cover the equivalent of about nine months of government financing. Viewed in terms of how much fresh cash NS&I is currently raising, its impact can be counted in days, not months. In the first six months of 2024/25, NS&I’s net inflow was £3.3 billion – four days’ worth of government financing.
Currently government bonds (gilts) account for the lion’s share (a projected £296.9 billion in 2024/25) of government financing. That makes NS&I an also-ran, picking up the public’s retail pennies rather than institutions’ warehoused pounds. Arguably, if NS&I did not exist, it would not be invented today. But it does exist, and the government would not want to see the NS&I’s £230 billion+ disappear, so it will continue to survive.
In recent months, NS&I has been cutting rates on many of its products, from Premium Bonds (prize rate now 4.0% against 4.4% in November 2024) through Income Bonds (3.44% now against 3.93% in mid-November 2024) to two-year Guaranteed Growth Bonds (3.60% now against 4.60% in early September 2024). NS&I rarely tops the rate tables, and the recent cuts have left it languishing at the point where better returns can be found from that other government borrowing route – gilts.
If you hold NS&I investments, it is worth checking whether they still are the right home for your cash.
The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.
To discuss your financial planning, contact our Sheffield based Financial Advisers on 0114 266 4432 or info@smh.group
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