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Battle of the 2.2% bonds: Atom Bank or NS&I- which is best for you?

Written by: Paloma Kubiak
The highly anticipated NS&I three-year savings bond launches next month, matching the market leading 2.2% rate already offered by challenger Atom Bank. So, which product is best for you?

Update 15 March 2017: Atom Bank has confirmed the interest rate on its three-year bond will be cut from 2.2% to 1.9% from midnight tonight.

The NS&I three-year Investment Guaranteed Growth Bond will launch in April offering savers 2.2% interest on balances up to £3,000.

However, Atom Bank has already topped the best buy tables with its 2.2% three-year bond, meaning savers looking to lock their money away for a few years will have a choice of product. See’s NS&I bond guide for more details of the scheme.

Below we outline the key differences to help you work out which provider may be best to house your money.

Opening and managing your account

The NS&I bond can only be opened and accessed online whereas Atom Bank’s bond can only be operated via an app so it may not be suitable for all savers.

The Atom Bank app is available on iPhone and Android, and supports Marshmallow and Lollipop OS, as well as Samsung S4, S5, S6 and S7 Edge, along with Google Nexus 5X and 6P.

Atom confirms there are no plans to release a website version.

Saving thresholds

Savers with NS&I will be able to deposit a minimum of £100 and a maximum of £3,000. The lower limit with Atom is £50 and the upper limit is much higher with savers able to deposit up to £100,000.

With compounding, the maximum amount of interest savers can receive on £3,000 is just over £202 (£66 in year one, then £67.45 in year two and £68.94 in year three so £202.39 in total).

Interest rates and accessibility

We know that both three-year bonds pay 2.2%. However, a big difference is that Atom Bank does not allow savers early access to their cash before the maturity date. The only exception is in cases of financial hardship, which will be assessed on a “case-by-case basis”.

In comparison, the NS&I bond, while marketed as a three-year savings product, does actually allow holders to access some or all of their money, though the amount cashed in is subject to a penalty equal to 90 days’ interest.

For savers who have the intention of locking in their money for three years, the flexibility of the NS&I bond could prove to be a lifeline if they need access to their cash earlier than anticipated, and within the fixed term.

If a saver with an NS&I bond accessed their cash early, these are the equivalent rates of interest they would earn:

  • Cash out at end of year one = equivalent 1.65% (accounting for a 90 day penalty)
  • Cash out at year two = equivalent 1.94% (accounting for a 90 day penalty)
  • Cash out at year 3 = 2.2% (maturation, so no penalty).

Currently the best one-year bond is from Atom Bank which just last week cut its interest rate to 1.8% from 2%. Despite Atom’s cut, this is clearly better than the equivalent 1.65% rate for savers of the NS&I bond who may need access to their money in the first year.

In terms of the current best buy two-year fixed bond, again Atom trumps the table with a 2.10% offering, again ahead of the equivalent two-year rate offered by NS&I.

Security and rate guarantee

The NS&I 2.2% is guaranteed for the duration of the three years and will be available for a 12 month period. Another benefit of NS&I products is that they’re backed by HM Treasury so they offer 100% capital security.

However, while Atom’s rates are fixed for the duration of the bond, it can increase or decrease the offering for new customers as was seen last week when it cut the one-year fixed rate from 2% to 1.8%.

Atom Bank is covered by the Financial Services Compensation Scheme (FSCS) which means deposits up to £85,000 will be protected. As you can save up to £100,000 in Atom Bank’s bonds, only the first £85,000 will be protected should the bank fail.

The verdict

Anna Bowes, director of independent research site SavingsChampion, said: “I would say that it’s probably not worth opening the NS&I 3-year bond if you are simply looking to cash in after a year as for the extra hassle of remembering to give notice and waiting for the funds to be returned, compared to what’s currently available elsewhere for a 1 year bond, you can either do better or only very slightly worse.

“However, having access with a penalty equivalent to 90 days’ interest is a good facility as most fixed rate bonds don’t allow access at all.”

Rachel Springall, finance expert at Moneyfacts, said: “Most fixed rate bonds tie the money down, so it’s positive that there is some flexibility with NS&I particularly as it’s a 3 year bond. There are some shorter-term bonds such as Newcastle BS one year at 1.40% that allows a 25% withdrawal of the original investment.

“Atom Bank doesn’t allow early access to funds on the 3 year bond so anyone worried about the need to access their cash may prefer NS&I.”

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