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More and more customers, worried about their banks' financial stability, are turning to NS&I as a "safe haven".
Government-guaranteed National Savings & Investments (NS&I) is to cut its interest rates, it has emerged.
The provider has recently been a beneficiary of the "flight to safety" among consumers, as the credit crunch worsens. Increasing numbers of savers have been attracted by the fact that NS&I's savings are 100 percent protected by the government.
Elsewhere, savings deposits from high street banks are covered by the government's insurance scheme - which only protects the first £50,000 of savings.
NS&I's reductions of up to 0.2 percent came into effect yesterday. The move follows similar cuts from the nationalised Northern Rock bank - whose savings accounts are also guaranteed by the government.
"In recent weeks NS&I has observed an increase in sales volumes and has taken the decision to reduce rates," a spokesman told the BBC.
"The changes aim to support NS&I in meeting its annual net financing remit, maintain a consistent level of market share and to provide a positive savings experience for its customers."
NS&I's popular Premium Bond fund has also been cut in value due to the changes. The prize fund has now been reduced in size from £104 million to £100 million.
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