Over 400,000 customers of National Savings & Investments will experience an interest rate cut in mid-November.
The interest rate payable on their tax-free ISA will be cut from 1.5% to 1.25% from 16th November 2015.
The cuts are a result of NS&I experiencing a big inflow of new cash and will apply to £3.8bn of savings.
Government rules mean NS&I cannot damage market competition, so it is occasionally forced to cut rates to discourage new money.
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.
“However customers continue to benefit from a competitive rate, and 100% security on all their deposits”
Looking across the market, the most competitive variable rate cash ISA we can find at the moment is from Dudley Building Society, offering 1.45%.
Whilst always disappointing to experience an interest rate cut, we suspect most NS&I Direct ISA customers will take no action and remain with the provider.