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NS&I one-year fixed rate bonds are back: How good are they?

Written by: Emma Lunn
National Savings and Investments (NS&I) has released new issues of one-year fixed rate Guaranteed Growth Bonds and Guaranteed Income Bonds. But how good are the offerings?

The bonds are on sale from today at 4% gross/AER and 3.90% gross/3.97% AER respectively.

N&SI is also increasing interest rates for almost half a million existing customers with Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates if they reinvest their money at maturity.

Bonds explained

Guaranteed Growth Bonds are a lump sum investment that earns a fixed rate of interest over a set period of time (called the ‘investment term’). Guaranteed Growth Bonds are designed to be held for the full term. Interest is calculated daily and is added to the bond on each anniversary of the investment.

Guaranteed Income Bonds are lump sum investments that pay out monthly income for a set period of time. They earn a fixed rate of interest that is guaranteed for the length of the term you invest in.

One-year Guaranteed Growth Bonds and Guaranteed Income Bonds were last on sale in 2019. They give savers the opportunity to invest for just one year with a minimum investment of £500 and a maximum of £1m in each issue. After one year, savers will have the choice to withdraw their cash or reinvest.

Ian Ackerley, NS&I chief executive, said: “It’s continuing to be an exciting time for savers and I’m pleased that we are able to bring back on general sale our popular one-year fixed-rate bonds with two new Issues. Existing customers may also gain from a better deal when their current bonds mature, with the option to renew with a higher interest rate.

“At the same time, by offering two new issues today, we are continuing to balance the interests of savers, taxpayers and the broader financial services sector to support our net financing target which contributes to the funding of public services.”

How do the new products compare?

The new rates for Guaranteed Growth Bonds and Guaranteed Income Bonds are the highest since 2010, when they were 3.20% and 3.15% gross/3.20% AER respectively.

However, the accounts pay slightly less than a number of best one-year bonds on the market – Smart Save offers 4.16% AER on a minimum £10,000 deposit, according to Savings Champion.

Alternatively, those with a small amount to save could consider Atom Bank which pays 4.15% and only requires a minimum investment of £50.

But, the most you can save with Atom is £100,000 while with NS&I you can invest up to £1m in the bonds.

The other boon of NS&I is that savings are 100% backed by the Treasury.

Higher interest rates for existing customers

An estimated 494,000 savers with one, two, three and five-year Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates accounts will benefit from higher interest rates if they reinvest their money when the bonds and certificates mature.

The two, three and five-year products are only available to existing customers with maturing products and are not open to new customers.

All the NS&I interest rate changes

Here are all the NS&I rate changes that take effect from today.

Fixed-term savings products (on sale from 1 February 2023)

  • Guaranteed Growth Bonds (one-year): From 3.6% AER/Gross to 4% AER/Gross
  • Guaranteed Income Bonds (one-year): From 3.5 AER/Gross to 3.9% AER/Gross

Fixed-term savings products (not on sale but available to customers with maturing products)

  • Guaranteed Growth Bonds (two-year): From 3.65% AER/Gross to 4.2% AER/Gross
  • Guaranteed Growth Bonds (three-year): From 3.7% AER/Gross to 4.2% AER/Gross
  • Guaranteed Growth Bonds (five-year): From 3.8% AER/Gross to 4.25% AER/Gross
  • Guaranteed Income Bonds (two-year): From 3.55% Gross/3.61% AER to 4.1% Gross/ 4.18% AER
  • Guaranteed Income Bonds (three-year): From 3.6% Gross/3.66% AER to 4.1% Gross/ 4.18%AER
  • Guaranteed Income Bonds (five-year): From 3.7% Gross/3.76% AER to 4.15% Gross/4.23% AER
  • Fixed Interest Savings Certificate (two-year): From 3.4% tax-free AER to 4% tax-free AER
  • Fixed Interest Savings Certificate (five-year): From 3.55% tax-free AER to 4.05% tax-free AER.

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