Blow to savers as NS&I cuts £1m deposit limit on bonds by 99%
The government’s saving arm relaunched its one and three-year guaranteed growth and income bonds in December, allowing savers to deposit up to £1m into the products.
But just six months in, it has slashed the maximum amount new savers can deposit to just £10,000 (£20,000 for joint accounts) – a massive 99% cut – effective from today.
One of the big draws of NS&I savings products is that amounts are backed by HM Treasury and are therefore 100% capital protected. Ordinarily, banks come under the Financial Services Compensation Scheme (FSCS) meaning a maximum of £85,000 is returned to savers if the bank goes bust.
The good news is that existing savers who already have a one or three-year guaranteed growth or income bond will be able to re-invest up to £1m when their product matures. If these savings are cashed in and the customer opens a new issue of the bond, however, they’ll only get a £10,000 savings limit.
The current NS&I bond interest rates will remain the same, after they were cut in March this year:
- The one-year Guaranteed Growth Bond pays an interest rate of 1.50% gross/AER, while the three-year Bond pays 1.95% gross/AER
- The one-year Guaranteed Income Bond pays an interest rate of 1.45% gross/1.46% AER, and the three-year Bond pays 1.90% gross/1.92% AER.
NS&I said changes to the investment limit were needed in order to achieve its ‘net financing target for 2018/19’, and the decision was made rather than cutting the interest rate which “presents a fair offer to savers”.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said savers with a lot of cash loved these products, because they could save up to £1m in each, with a government-backed guarantee.
Now that the savings limit has dropped substantially, she said new savers should “look elsewhere for a better rate”.
“The three-year NS&I Guaranteed Growth Bond offers 1.95% interest, which is well below the most competitive fixed rate over this period (2.31% from RCI Bank). Competition in the one-year fixed rate account market, meanwhile, has been intensifying in recent weeks, so you can now get up to 2.05% (Atom Bank) compared to the 1.5% available from NS&I’s Guaranteed Growth Bond.
“In both instances, even if they have £1m and have to spread it over the 12 most competitive accounts in order to ensure their money is protected by the FSCS, savers will still get a better rate on even the least competitive of the 12 than they would from NS&I at the moment.”