The Government’s savings arm has chopped rates on its two-, three- and five-year fixed term British Savings Bonds for new savers as of today, adding that the revised issues offer a “fair return”.
It said the move comes as the new interest rates “reflect the changing savings market”, which has seen rates come down, particularly at pace since the Bank of England base rate fell from 5.25% to 5% in August.
The table below shows the previous rates and today’s rates:
Guaranteed Growth Bonds earn a fixed rate of interest over the set period of time, paid on each anniversary of the investment. As of 31 March 2024, there were approximately 477,000 customers holding £21.42bn in Guaranteed Growth Bonds.
Meanwhile, Guaranteed Income Bonds pay out interest to a nominated bank account monthly over the set period of time. Here, an estimated 81,000 people held Guaranteed Income Bonds with a total balance of £7.45bn at the end of March 2024.
You can invest from £500 to £1m in each issue, and your money is 100% secure as it’s backed by HM Treasury. But remember, if you go over your Personal Savings Allowance, you’ll pay tax on the interest at your marginal rate.
Just last month, NS&I revised interest rates upwards on the British Savings Bonds range. While they weren’t market-leading, experts suggested that the “middle-of-the-road” offering would still likely see them sell quickly, particularly because of the big investment threshold and protection offered through NS&I.
‘Doesn’t bode well for Premium Bond savers’
However, with rates now chopped, Mark Hicks, head of Active Savings at Hargreaves Lansdown, said it was always a matter of when these cuts were going to come, rather than if.
“The fact NS&I is cutting rates today demonstrates that it’s not desperately keen to fill its boots, so it isn’t going to be comfortable with paying over the odds. This doesn’t bode well for Premium Bond savers,” he added.
In July, YourMoney.com reported that NS&I overshot its fundraising target by nearly £1bn, signalling possible rate cuts on products in the future.
“Last year, NS&I distorted the market with a market-leading one-year rate, but these moves imply that NS&I isn’t in any rush to do the same again. It’s not desperate to raise significant funds by paying more than it needs to,” Hicks said.
He added that for anyone holding Premium Bonds, “this isn’t going to be a great sign”.
“There’s every chance NS&I could cut its variable rates sooner rather than later, which could mean the Premium Bond prize rate gets less generous,” he said.
Hicks added that anyone considering an NS&I fixed rate bond at these new rates “needs to seriously consider whether it’s the right home for their money”.
“There will always be savers who love the brand for its Treasury backing, but given the protections available across the savings market from the FSCS, you’re paying a serious price for additional protection you may not need,” he said.
