NS&I slammed for 'ripping off' savers with 1% interest accounts

Savers have been "short-changed" by the state-backed company's postal-only Investment Account, which offers returns far below inflation, currently 3.8% in July.

It means those with money in these accounts are making a loss in real terms.

A total of £1.5bn is currently sitting in 1.4 million variable-rate accounts, with individual sums of up to £100,000.

Someone with £50,000 in the bank would earn £500 in interest in the account over a year if the interest remained the same.

But the real terms, their savings fall to just £48,651 if inflation stayed at its current level.

NS&I's competitors are currently offering savings accounts with an inflation-beating rate of 4.5%.

If savers were to move £50,000 into these accounts, it would leave them £2,250 better off over the same period.

However, after adjusting for inflation, they would see a real-term increase of only £337.19 to their savings pot.

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Consumer expert Martyn James believes long-term, often elderly, users of the NS&I accounts will be hit hardest if price inflation rises to 4% over the coming months.

"These tend to be longer-term investments that older people have taken out and who might not realise they’re being paid lower rates," he told the Telegraph.

"It’s seen as a safe and trusted place to put your money but in some of the policies it’s certainly not beneficial and you’ll actually be losing money.”

Since 2023, firms in the cash saving market have been required to take steps to make it much easier for customers to compare and contrast account prices, ensuring those holding higher balances over longer periods of time are not “holding excessive funds in easy access accounts and foregoing interest”.

NS&I Investment accounts usually appeal to customers with large cash savings because, unlike other providers, 100% of all deposits are protected.

But Mr James said the Treasury-backed savings bank was "ripping off" savers and called on it to inform its customers about their underperforming accounts.

“It would be very easy for these people to switch their account to one of these infinitely superior rates and get four times as much,” he said.

An NS&I spokesperson said: "We do not promote the Investment Account to new customers as we have a number of alternative accounts, such as Direct Saver and Income Bonds, that pay a higher rate of interest and can be managed by post if required, which customers can choose as an alternative.

“For existing Investment Account customers, we include details of other NS&I products which they may find more suitable in their annual postal statements. We also run regular email campaigns to Investment Account customers highlighting other NS&I products with higher interest rates.”