The NS&I instant access ISA has reduced the interest rate to 1.25% from 16 November 2015.
The government-backed organisation said it had reduced the rate on the tax-free account to bring it in line with other providers.
NS&I, which has restrictions on how much money it can accept each year, has faced criticism from other savings institutions who have struggled to compete with its rates.
It said that in making the decision to cut it had to balance several interests. Jane Platt, NS&I chief executive, said: “Interest rates in the easy access ISA market have been in decline over the year, and our Direct Isa rate has stood out at the top of the best-buy tables for some time.
“To ensure that we continue to strike a balance between the needs of our savers, taxpayers and the stability of the broader financial services sector, we have taken the difficult decision to reduce the rate on our Direct Isa.”
Latest figures show over 404,000 savers hold a Direct Isa, the account is still open to new customers.
Unlike other savings providers, customers with NS&I have all of their deposits guaranteed by the government. This is especially attractive when the Financial Services Compensation scheme is set to fall to £75,000 per account by the end of the year.
This blog is not independent financial advice, if you wish to discuss the impact of a reduction of your cash ISAs interest rate, please contact us for assistance.