NS&I has also slashed its Direct Saver rate from 1.5 per cent to 1.1 per cent and Income Bond from 1.75 per cent to 1.25 per cent.
With Consumer Prices Index inflation at 2.4 per cent, savers are increasingly faced with below inflation returns on their cash, or taking risk in the markets. There's been a lot of wishful thinking from savers that NS&I will bring back its index-linked savings certificates, that provided tax-free returns linked to Retail Prices Index inflation. But there are no inflation protected products available via other banks, either.
With few attractive rates available elsewhere, savers who like the security of the government-backed bank may not want to move. The remaining top rate easy access account 1.70 per cent gross (including 12-month bonus) from Nationwide only amounts to 1.02 per cent net for higher rate taxpayer and 0.85 per cent for a top rate taxpayer).
If there's no chance of beating inflation because after tax cash returns are paltry, NS&I Premium Bonds are looking increasingly attractive for higher rate taxpayers. NS&I hasn't cut the prize pool on Premium Bonds, which remains the equivalent to an interest rate of 1.5 per cent.
That rate is not what investors in Premium Bonds will get, of course - the nature of the tax-free prizes (starting from £25) is that some investors will win a lot more than 1.5 per cent and some will win a lot less. Premium Bonds are 100 per cent secure and backed by the Treasury, though you can lose out to inflation if you don't win prizes.
While the probability of winning varies, there is a chance of winning more and, of course, one person will win the monthly £1 million prize.
Money Saving Expert has a probability calculator for Premium Bonds that estimates the chances of winning a prize for different levels of holdings: http://www.moneysavingexpert.com/savings/premium-bonds-calculator/
