The government’s savings arm – NS&I – has confirmed more than 1.3 million people will see a boost to their savings after it announced interest rate rises across the board this summer.

Here’s what’s changing today:

• Direct Saver: From 0.5% AER/Gross to 1.2% AER/Gross
• Income Bonds: from 0.5% AER/Gross to 1.2% AER/Gross
• Direct ISA: From 0.35% AER/Gross to 0.9% AER/Gross
• Junior ISA: From 1.5% AER/Gross to 2.2% AER/Gross.

The interest rate paid on older and off-sale products including Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates will also rise by up to 215 basis points. But the changes come into effect from 1 August. Here’s what’s happening:

• Guaranteed Growth Bonds (1-year): From 0.1% AER/Gross to 1.85% AER/Gross
• Guaranteed Growth Bonds (2-year): From 0.15% AER/Gross to 2.25% AER/Gross
• Guaranteed Growth Bonds (3-year): From 0.4% AER/Gross to 2.55% AER/Gross
• Guaranteed Growth Bonds (5-year): From 0.55% AER/Gross to 2.55% AER/Gross
• Guaranteed Income Bonds (1-year): From 0.06% AER/Gross to 1.8% Gross/1.81% AER
• Guaranteed Income Bonds (2-year): From 0.11% AER/Gross to 2.2% Gross/2.22% AER
• Guaranteed Income Bonds (3-year): From 0.36% AER/Gross to 2.5% Gross/2.53% AER
• Guaranteed Income Bonds (5-year): From 0.51% AER/Gross to 2.5% Gross/2.53% AER
• Fixed Interest Savings Certificate (2-year): From 1.3% tax-free AER to 2.15% tax-free AER
• Fixed Interest Savings Certificate (5-year): From 1.9% tax-free AER to 2.45% tax-free AER.

NS&I said the changes will ensure its products are “priced appropriately” when compared with the rest of the savings market, as well as balancing the interests of savers, taxpayers, and the financial services sector. It comes after it recently boosted Premium Bonds prizes and the odds of winning.

While the increases show a marked improvement in the rates offered, they are not market-leading.

‘NS&I may need to up its game again’

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Disappointing NS&I rates have been given a significant boost, which is great news for savers.

“This is a real pick up in rates on easy access savings and the Junior ISA. They’d fallen so far behind the rest of the market they were hardly visible to the naked eye. The current rates aren’t market-leading, but they are within shouting distance of the best around, and they will appeal to plenty of savers.”

She added: “NS&I is a well-known and trusted brand, the money is 100% protected by the Treasury, and it offers people enormous peace of mind at a time when we value some certainty. For parents in particular, the decision of where to put JISA money carries emotional heft, so the comfort of the brand will be particularly valuable.

“NS&I can’t afford to fall too far behind the market. In the last tax year, funding came in at the lower end of the target, and it has a similar net funding target this year. It means this may not be the last of the hikes. When the next base rate hits town as early as 4 August, with a rise of as much as 0.5 percentage points, NS&I may need to up its game again.”

£1bn extra in interest

Laura Suter, head of personal finance at AJ Bell, said: “The increases mean that NS&I savers will get £1.1bn more in interest from today – a significant boost that will be welcomed in the current cost-of-living crunch. Savers in the accounts that are still open to new customers will see a collective £373m boost to their interest from today, while those in the closed accounts will see a £742m boost.

“It’s a real turnaround from two years ago, where NS&I slashed rates causing an exodus of savers from its products. The new rates, which come in immediately, mean that the Direct Saver, Direct ISA and Income Bonds are paying the same or more interest than before those rate cuts in September 2020. Among the accounts still open, only Junior ISAs have failed to return to their former glory, paying 3.25% interest in 2020 and just 2.2% interest after the rate hikes today.”

She added: “The increases don’t propel NS&I to the top of the tables but that’s never the aim with the government-backed provider.”

NS&I chief executive, Ian Ackerley, said: “NS&I is one of the largest savings organisations in the UK and we’re pleased to increase our interest rates, helping to ensure that more than 1.3 million savers across the country will see their savings nest eggs boosted.

“Increasing our interest rates means that our products are priced appropriately when compared with the interest rates offered by our competitors.”