National Savings & Investments (NS&I) is reducing the interest rate on its Direct ISA by 0.25% to 1.5% from 27 February next year.
It follows NS&I's regular review of the savings market, which includes an assessment of the interest rates payable on products comparable to Direct ISA.
The change will affect more than 316,000 people, the Treasury-backed organisation said.
NS&I chief executive Jane Platt said: "The Direct ISA rate stood out in our review of competitor rates offered on ISAs with no bonus component. We consider the revised rate offers a fair rate to customers in the current interest rate environment."
It follows a number of changes made by NS&I this year to simplify its product range.
In May, it closed its Cash ISA, which had already been shut to new customers, with existing investors transferred to the Direct ISA. It also made some changes to its Income Bonds, including doing away with two different interest rates depending on how much customers invest.
Last year, it also made a number of changes to its fixed term investment products, including introducing a penalty for early encashment.
NS&I sets its interest rates to balance the interests of savers, taxpayers and the stability of the broader financial services sector.
Bought plans in 1988 and 1989
To be added to model portfolio service
Launched 25 September