National Savings and Investments (NS&I) – the Government’s savings arm – has released a flurry of British Savings Bonds for new and existing customers. But how do they stack up against the rest of the market?
New savers to NS&I can opt for a two- or five-year Growth Bond, which earns a fixed rate of interest over the set period of time, paid on each anniversary of the investment.
Alternatively, NS&I is offering a two- or five-year Income Bond, which pays out interest to a nominated bank account monthly over the set period of time.
The table below details the rates for new customers and the previous interest rate for those already holding the British Savings Bonds.
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.
Meanwhile, it is also increasing the interest rate on its existing three-year fixed-term British Savings Bond option for new customers.
The three-year Guaranteed Growth Bond will now offer 4.35% gross/AER, while the three-year Guaranteed Income Bond will increase to 4.26% gross/AER.
After the fixed-term period across the British Savings Bond range, savers will have the choice to withdraw their cash or reinvest into a new term.
As such, savers who are rolling off the 6.2% gross/AER one-year Guaranteed Growth and Guaranteed Income Bonds will now be able to open the next one-year deal offering 5.15% AER. This is only available to existing customers (from 25 July 2024), so you can’t get this if you’re new to NS&I.
In total, NS&I confirmed it has around 477,000 Guaranteed Growth Bonds customers (as at 31 March 2024) with a holding balance of £21.42bn. There are an estimated 81,000 customers holding its Income Bonds, with holdings in the region of £7.45bn.
‘Middle-of-the-road rates’ but ‘likely to sell quickly’
Sarah Coles, head of personal finance at Hargreaves Lansdown, explained that the best on the market two-year bond pays a higher 5%, three-year bonds pay up to 4.76%, while on the five-year fix term period, savers can get 4.55%, higher than the 4.1% offered via NS&I.
Coles said: “NS&I is going for a Goldilocks boost to the British Savings Bond. It wants to attract more cash to hit a slightly more generous fundraising target, but it doesn’t want to go too far and bust the limit like last year. Middle-of-the-road rates on less popular savings accounts are a sensible solution.
“This enables it to boost rates, offer more choice for customers, and gently increase the amount of money it makes for the Treasury. While these are decent rates, they’re not going to set the savings world alight. They can all be significantly beaten by the best on the market, and there are plenty of banks offering better deals, so rate hunters are likely to give them a miss. If you’re in the market for a new fixed deal, you can get more interest elsewhere.”
She added that the timing “is clever” because the Bank of England rate cut will have reminded people that in the coming months, we can expect easy-access savings rates to fall. These new accounts may appeal to anyone who still hasn’t got round to fixing at least some of their savings while rates remain higher. And because they allow investments of up to £1m – 100% protected by the Treasury – it will appeal to some of those with larger balances.
This is echoed by Laura Suter, director of personal finance at AJ Bell, who said despite offering less interest than the market leader, “they are likely to sell quickly once again”.
She said: “It’s tricky for NS&I to get the interest rate right on these products: too high and they’ll attract swathes of cash and have to pull the accounts from sale, too low and savers will go elsewhere, meaning NS&I will have to crank up the interest rate later.
“Regardless, these accounts are likely to be very popular as they are backed by NS&I and many savers have huge brand loyalty to the organisation. There are around 550,000 existing bond accounts held by NS&I customers, with an average investment of almost £52,000 in each account.”
However, she warned that savers need to be careful they don’t land themselves an unwanted tax bill with these accounts.
“While NS&I’s Premium Bonds are tax-free, these British Savings Bonds aren’t, which means that you could pay tax on the interest you earn if you breach your Personal Savings Allowance. With the growth version of the bond, you will be taxed on all the interest you receive when it’s paid out at the end of the term – which could mean you breach your tax-free Personal Savings Allowance. If this is the case, you may be better off opting for the income version of the bond, which pays out interest monthly. However, you won’t benefit from compounding in this account.”
Dax Harkins, NS&I’s chief executive, said: “It is 15 years since we last had two- and five-year fixed-term bonds on general sale to new investments. The two new issues, along with a rate increase for our three-year bonds, provide NS&I savers with increased choice and longer-term security in a changing market.
“Today’s changes will help us to meet our net financing target while continuing to balance the interests of savers, taxpayers and the broader financial services sector.”
Related: Confused over monthly or annual savings interest? Here’s what you need to know
