NS&I makes major announcement of new product with ‘higher’ returns | Personal Finance | Finance
Savings giant NS&I has launched new versions of its one-year British Savings Bonds with increased interest rates. According to one finance expert, the move looks to be bucking “the trend in a falling market”.
British Savings Bonds are fixed-term issues of NS&I’s Guaranteed Growth Bonds and Guaranteed Income Bonds. They are available to new customers and those with existing bonds which are due to mature.
The new rate for the one-year Growth and Income options is 4.18% AER (annual equivalent rate). The previous rate was 4.05% AER. It is available from Thursday (July 24).
Andrew Westhead, NS&I’s Retail Director, said: “I am pleased that we can offer savers – both new and those with our existing one-year bonds which are about to mature – this new opportunity to save.
“In launching this new issue, NS&I continues to balance the interests of its savers, taxpayers and the broader financial services sector – and to work towards its annual net financing target.”
Guaranteed Growth Bonds and Guaranteed Income Bonds are available to customers who want a guaranteed rate for a fixed-term of one, two, three or five years.
Funds cannot be withdrawn early with fixed-term accounts. Savers need a minimum investment of £500 and can invest a maximum of £1million per person in each issue. After the fixed-term period, savers have the choice to either withdraw their cash or reinvest into a new term.
Guaranteed Growth Bonds are a lump sum investment that earns a fixed rate of interest over a set period. Interest is added to the bond on each anniversary of the investment.
Guaranteed Income Bonds are a lump sum investment that pays out monthly income at a fixed rate of interest over a set period.
NS&I launched some new versions of its two, three and five-year British Savings Bonds with lower rates than previously offered earlier this month. It also also lowered the rate on a Junior Isa from July 18, from 4.00% to 3.55%.
Sarah Coles, Head of Personal Finance at Hargreaves Lansdown, said NS&I has bucked the trend in a falling market.
She said that elsewhere savings have been gradually dropping across the board, adding that fixed terms have generally held up slightly better than easy access accounts, but are still trending downwards.
Ms Coles said: “NS&I itself cut the rate on its bonds fixed for two, three and five years earlier this month – along with cuts to the Premium Bond prize rate in August.
“It’s not worth getting too excited about, though. The one-year bond went back on sale in April this year, and the rate at the time was a dismal 4.05%.
“NS&I has to offer a rate somewhere in the middle of the pack, so it doesn’t tend to be market leading, but clearly at this rate it wasn’t pulling in enough cash.”
She said the rise unveiled today still leaves NS&I “well behind” market leaders, which offer more than 4.5%, but it will be hoping it has done enough to retain savers with maturing one-year bonds and to attract new cash.
Laura Suter, Director of Personal Finance at AJ Bell, said savers need to be aware of the downsides. She added: “Unlike Premium Bonds, these savings aren’t tax-free.
“If you’re a higher-rate taxpayer and already maxing out your personal savings allowance, you’ll face a tax bill on the interest.
“It’s another reminder to consider whether your ISA allowance could be better used for cash savings. Ultimately, this is a decent option for those who value security and simplicity over chasing the best possible return.”
