British savers who fled to National Savings and Investments amid growing uncertainty over the viability of high street banks have been hit with interest rate cuts after the government-backed savings provider slashed payments by up to 0.2 per cent.

NS&I admitted the move, which comes ahead of an expected cut to the Bank of England base rate on Thursday, was to benefit “stakeholders” after a huge influx of deposits from worried investors.

Rates for savers invested in NS&I’s tax-free individual savings accounts were cut from 4.6 per cent to 4.4 per cent. Interest paid on income bonds is reduced from 4.5 per cent to 4.3 per cent, while easy access savers with £50,000 deposit or more will also face a cut from 4.5 per cent to 4.3 per cent.

The rate paid on popular premium bond prizes is reduced from 3.40 per cent to 3.25 per cent.

Savers flocked to NS&I after the collapse of Northern Rock last year and more recently when big players such as HBOS, Alliance & Leicester (A&L), Royal Bank of Scotland, and Bradford & Bingley (B&B) experienced plunging share prices.

Abbey, owned by AA-rated Banco Santander of Spain, has taken over A&L and the savings arm of B&B, while HBOS is poised to merge with Lloyds TSB.

NS&I said in a statement: “In recent weeks NS&I has observed an increase in sales volumes and has taken the decision to reduce rates. NS&I's strategy is to add value for its stakeholders."

It added: “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.”

Some economists predict a cut to official interest rates of up to one percentage point to 4 per cent, potentially bringing more pain for savers in variable rate interest accounts.

Northern Rock, which is now government-owned and therefore provides savers with a 100 per cent guarantee, has also witnessed a spike in deposits, alongside the Post Office and Anglo-Irish Bank, which are owned by the Bank of Ireland and as of last week offer savers "blanket protection".

Michelle Slade of Moneyfacts, the financial data firm, said: “Both Northern Rock and NS&I have agreed limits on the total amount of depositors’ money that they can accept and both are dangerously close to this level as savers look to find what they perceive as the most secure home for their money.”

The total value of prizes available to premium bond holders is estimate to fall from £104,565,250 to £100,168,229. However, NS&I said the odds of winning a prize with each £1 Premium Bond remains at 22,000 to 1.