National Savings & Investments said it is to cut its interest rates for some customers by more than the recent drop in the Bank of England base rate.
The Treasury-backed savings group said rates paid on its Investment Account would fall by 0.3 per cent to range from 2.95 per cent to 3.85 per cent depending on how much customers held in their account.
It added that rates on all of its other products, including Premium Bonds, would be reduced by 0.25 per cent.
The new rates come into effect from 1 September for savings accounts and from 6 September for income bonds.
The move follows the recent decision by the Bank of England's Monetary Policy Committee to cut interest rates by a quarter point to 4.5 per cent.
NS&I defended its decision saying it had not reduced the rates it paid on any of its variable products since July 2003 when the MPC last reduced base rates.
The group said it also took into account factors such as gilt rates, the cost of running the accounts and the interest paid by its competitors when setting its rates.
Peter Cornish, head of customer offer at NS&I, said: "The changes to our interest rates reflect the fall in the Bank of England base rate.
"This has affected banks and building societies across the board, with many of our competitors reducing rates to their savings products over the past month.
"We always price our offers fairly and consistently and if the base rate rises again, we would aim to make appropriate increases."
Following the reductions the new Premium Bond prize fund rate will be three per cent. The group said the odds of winning a prize would remain the same at 24,000 to one, meaning that someone with the maximum investment of £30,000 and average luck could expect to win 15 tax-free prizes a year.