Nervous savers have been pouring money into National Savings & Investments (NS&I) as economic turmoil and financial scandals have damaged consumer confidence in the high-street banks and building societies.
Anna Bowes, who is director of Savingschampion.co.uk, says: "The big attraction of NS&I is the security. It is backed by HM Treasury, so your money is safe – and that's important to savers in the current climate."
Savings rates are falling across the market. The average rate on the top five easy-access accounts has dropped by 0.21 percentage points since the beginning of August, according to MoneySupermarket. It now stands at 2.85%.
NS&I has also cut rates on some of its accounts and pulled a number of its best deals in an attempt to deter customers, as it looked likely to breach the target set by the Treasury in order to ensure a competitive marketplace.
The Direct Saver account, for example, now pays 1.5%, down from 1.75%. NS&I has also withdrawn its hugely popular index-linked savings certificates, which attracted nearly 500,000 savers over a four-month period. A spokesman told the Sunday Herald that they are unlikely to stage a comeback in the current financial year.
Your savings might be secure with NS&I, but are they working hard?
Premium Bonds are one of the most popular offerings in the NS&I range, often as gifts for children or grandchildren. Premium Bonds don't pay interest. Instead, savers are entered into a prize draw every month with the chance to win the £1 million jackpot, plus more than one million smaller prizes.
Premium Bonds are more of a gamble than a savings account. There is no interest so there is no protection against inflation. But Bowes does not dismiss them completely. "The risk you take with a Premium Bond is that you win nothing and so get no return on your money. But as savings rates have fallen, it doesn't seem like such a big risk to take."
Anyone over the age of 16 can buy Premium Bonds with a minimum deposit of £100, up to a maximum of £30,000. All prizes are tax-free.
Saver Malcolm Bell from Shetland, who has £15,000 of bonds, told the Sunday Herald: "It is an opportunity for a bit of a flutter. I have never had a major prize, but there's always the chance."
Bell also has NS&I's Cash Isa. He says: "The main thing for me is the security, but the cash Isa gives a fairly good rate of interest. A lot of banks offer what purport to be good rates but they only last 12 months or something. This one might not be market-leading but it is consistent."
The minimum opening deposit is £100, and the rate is 2.5%. You can earn 3% in M&S Bank's Cash Isa – but the rate will drop to 2.75% on December 11. The Virgin Easy Access Cash E-Isa pays 2.85%. If you want a higher rate, you would have to put up with some restrictions on withdrawals, or opt for a fixed deal for a set term.
The Direct Saver is NS&I's telephone and online easy-access savings account. It has a variable interest rate – currently 1.5% – and no penalties for withdrawals. Tax is also payable on the interest.
Again consistency is key. Halifax's Online Saver pays 2.8%, almost double the NS&I rate, but it only lasts 12 months before dropping to a ridiculous 0.1%. The AA's Internet Saver is also at 2.8% but it drops to 0.5% after a year. The best no-strings rival is again from Virgin, its E-Saver paying 2.5%.
The Investment Account, operated by post, pays a weak-looking 0.75%. If you are prepared to limit yourself to four withdrawals a year, the Allied Irish Bank (post and telephone) pays 2.8% for five years – otherwise it's 1.5%. (Safety-minded savers may well prefer NS&I to the AIB.)
Income Bonds from NS&I pay monthly income, and the more you invest the more you earn. But the rates are far from attractive. You earn 1.45% gross on deposits between £500 and £24,999, and 1.75% from £25,000 to the maximum £1m. Saga's easy-access Telephone Saver pays monthly interest of 2.72% gross – but again that includes a bonus of 2.22% for 12 months.
Parents and grandparents can take out a children's bond with NS&I that pays a fixed rate of 2.5% a year over five years. The minimum investment is £25, up to a maximum of £3000. But you must be able to lock your money away for the term, or you pay a penalty of 90 days' interest. You could opt for Clydesdale's five-year fixed-rate children's bond paying 3.7%.
The NS&I bond is, however, tax free for both parents and children, which could make it more attractive to some people than an account that offers a higher rate of interest.
Anna Bowes concludes: "There are some advantages to NS&I, such as the security and flexibility of the accounts. But in most cases, the average saver would be better off switching to a different deal where they could earn a higher rate of interest without putting their savings at risk."
They should, however, be prepared to keep moving their money around.
If you deposit savings with a bank or building society, you are usually covered by the Financial Services Compensation scheme. But the scheme only guarantees up to £85,000 and does not include some of the foreign banks. Savers also have to watch out if they have money in two banks that are part of the same group, such as Halifax and Bank of Scotland, or Barclays and ING, as the £85,000 would apply across the two institutions.