More than 400,000 savers holding the tax-free account will have the amount they earn each year cut from 1.5 per cent to 1.25 per cent, effective from 16 November.
“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,” said NS&I chief executive Jane Platt.
She added: “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.”
Unlike other savings banks, 100 per cent of customers’ deposits are guaranteed by the Treasury.
NS&I offers a range of savings and investment products to over 25m customers and manages around £100bn in savings.
Around 404,210 customers hold the bank’s Direct ISA product, according to the latest figures.