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NS&I increases interest rate on income bonds

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Written by: Emma Lunn
18/11/2021
National Savings and Investments (NS&I) has increased the interest rate on its Income Bonds by 14 basis points, from 0.01% gross/AER to 0.15% gross/AER.

This change aligns the interest rate for income bonds with the interest rate for NS&I’s Direct Saver account.

NS&I said the decision to increase the interest rate on income bonds is in line with NS&I’s operating framework to balance the interests of savers, taxpayers and the broader financial services sector.

Anna Bowes, co-founder of SavingsChampion.co.uk, said: “NS&I has seen enormous amounts of cash being withdrawn since the provider cut the rates on its savings accounts last year. So much so that in the first six months of the financial year, NS&I has only raised £600m of an annual target of £6bn.

“As a result, there was always a possibility that a rate rise of some description was on the cards. But also as expected it’s not a huge increase and actually only brings the rate up to the same level as the Direct Saver – and is still not competitive at all. That said, this will be good news for those who, for one reason or another, have decided not to move their cash, and at least it’s a better rate than you can earn with a high street bank.

“Whether it has the desired result and NS&I starts to attract money again, we’ll have to wait and see. Will there be more increases on the table? What NS&I will want to avoid is to attract too much money, so it’ll have to be a careful balancing act.”

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “At 0.15% it’s still way below the most competitive easy access account, offering 0.67%, so it is relying on the things that make NS&I special to draw the extra cash in. This includes its brand name and the fact that it’s 100% backed by the Treasury. In practice, however, you can hold up to £85,000 of savings with any institution, and your money is protected by the Financial Services Compensation Scheme, so for a typical saver, you can do far better elsewhere.

“The appeal may be limited mainly to those with really big cash balances. You can hold up to £1 million in these bonds and it’s all protected by the Treasury. For those with enormous amounts of cash, the ease of being able to avoid spreading their cash over 12 separate institutions, in order to protect it, may be enough to persuade them that the loss of interest is worth it. Appealing to these savers may bring NS&I closer to its targets, but it has done nothing to help everyday savers, hunting for a more rewarding place for their money.”

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