Borrowing costs

NS&I reveals savers cost it £ 887million last year because borrowing costs were so low

Lower borrowing costs, according to National Savings & Investments, mean that it is increasingly costly for the government to raise funds from savers, raising concerns that its highest savings rates in the market are not reduced.

It cost the Treasury-backed bank almost £ 887million more to raise funds from savers between April 2019 and March 2020 than if the Treasury borrowed the money, even before the government borrowed money. billion to finance its response to coronaviruses.

The fact that it costs the Treasury so little to borrow in the markets, coupled with the fact that NS&I previously aimed to withdraw less money from savers this year, may raise concerns that the best easy-to-access accounts are online. for once.

National Savings & Investments has supported the easy-to-access market, but reverse cuts in savings rates have cost the government money

However, the cost of the government’s response to the virus means the ax may not fall on NS&I so quickly, if there is a need to raise more money.

Its income bonds pay 1.15% monthly interest, its easy-to-access account 1% and its easy-to-access Isa account 0.9%, rates that are supporting the market right now.

Its floating rate accounts, which include Britain’s most popular savings product, premium bonds, were due to be cut in early May, but the cuts were rolled back to support savers and help the government’s response to the coronavirus.

But moving is costly, especially in an era of falling savings rates and all-time low borrowing costs, and the move means NS&I has likely been inundated with heaps of money from rate-strapped savers. .

Goldman Sachs closed its Marcus account to new savers a fortnight ago after raising £ 4 billion between April and June, as savers sought decent returns.

NS&I has suspended its “value indicator” for 2020-2021 due to what it called “exceptional market conditions”, but the fact that it has to balance the interest of savers with the cost to the Treasury suggests that cuts to its best buy rates could potentially be on the agenda.

Previously, it pulled its Guaranteed Growth and Income Bonds last October and cut the rate on them, as well as the rates on some of its fixed-term accounts last month.

NS&I was expected to raise less money from savers in 2020-2021, although this takes into account previously announced reductions which were later reversed.  The £ 6bn target would be subject to review, its chief executive said

NS&I was expected to raise less money from savers in 2020-2021, although this takes into account previously announced reductions which were later reversed. The £ 6bn target would be subject to review, its chief executive said

The Treasury borrowed a record £ 55bn in May and in one case sold debt at negative yield, meaning investors paid for the privilege of lending money to the government.

NS&I chief executive Ian Ackerley wrote in the bank’s annual report: “Between April 2019 and March 2020, for example, yields on 10-year gilts fell from 1.19% to 0.4%.

“As a result, the value indicator turned negative and continued to decline as access to finance through the retail market became a less profitable source of government funding than issuing gilt into the wholesale markets. “

But, he added, “NS&I gives the government flexibility by providing an alternative source of profitable borrowing for gilts.

In addition, NS&I has proven to be a stable and largely predictable source of debt financing for the government. ‘

And although NS&I previously planned to raise £ 6bn from savers this year, up from £ 11.6bn in 2019-20, he said: “This target will be subject to review during the year. to reflect the government’s funding needs resulting from the coronavirus. ‘

NS&I is used to raise funds for the treasury.  But the lowest borrowing costs meant it was £ 887million more expensive to raise money from savers last year than to issue government gilts.

NS&I is used to raise funds for the treasury. But the lowest borrowing costs meant it was £ 887million more expensive to raise money from savers last year than to issue government gilts.

What is stopping the rate cuts?

James Blower, founder of Savings Guru, says, “NS&I needs to give two months’ notice to make cuts, so in theory they should make them ASAP.

“Interest rates on savings continue to fall and NS&I tops the best buy charts with a good margin, which will only get worse.

Any other bank, in the position where NS&I is, would have already lowered its rates. I suspect politics is at the root of the situation …

James Blower – The Savings Guru

“They can’t keep up with the influx, as can be seen from comments on financial forums, Trustpilot reviews and the feedback we’ve received at Savings Guru from savers.

“Any other bank, in the position where NS&I is, would have already lowered its rates. I suspect politics is at the root of the situation and the NS&I themselves probably want to cut, but the Treasury doesn’t want to give another message of bad news with the still difficult Covid-19 situation.

“I think the mood is changing and I think they will announce cuts in mid-July, if the latest round of easing restrictions scheduled for July 4 goes well.

“Politically, the Treasury will feel it can justify it a bit more at that point and the changes will then go into effect in mid / late September and will also be tied to other government aid that ends in October.”

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