Premium Bonds bank NS&I announces changes in bonds as rates confirmed | Personal Finance | Finance

NS&I has unveiled rate increases across its guaranteed growth bonds and guaranteed income bonds – more commonly known as British savings bonds. The new issue of the one-year British savings bond has risen from 4.07% to 4.5% AER, while the two-year bond has climbed from 3.98% to 4.48%.

The three-year bond has jumped from 4.02% to 4.45%, while the five-year bond has seen the most modest increase, moving from 4.05% to 4.4%.

The bonds also carry a monthly interest option, giving savers the flexibility to choose between a regular income or having all interest paid out at the end of the term.

Expert Anna Bowes at The Private Office said: “This choice can be important, particularly for those who pay tax on their savings.

“With the longer-term bonds, if you opt to have the interest added to your bond each year and left to compound, it won’t be accessible until maturity.

“And from a tax perspective, that means the interest will be treated as if it were received in one go at the end. If your total interest in the maturity year exceeds your personal savings allowance, you could find yourself paying tax on the excess – and possibly nudged into a higher tax band too.”

The rate changes were announced ahead of the Bank of England’s rate-setting decision at 12pm today, when it held them at 3.75%.

Prior to the outbreak of war in Iran, there had been a strong possibility the Bank would have reduced the rate today. However, with fuel prices soaring and growing concerns that inflation could increase, the prospect of base rate cuts has been pushed back until the summer. While that spells bad news for those carrying debt, it has proved a welcome boost for savers as rates have improved considerably, particularly on fixed rate accounts, Ms Bowes explained.

As well as responding to broader market conditions, NS&I frequently adjusts its rates to either encourage or limit the flow of funds into the state-owned bank in order to meet its net financing target.This is the sum NS&I is tasked with raising on behalf of the government each tax year – taking into account both inflows and outflows.For 2026/27, that target has been raised from £13.6bn for 2025/26 to £15bn this tax year.”

In addition, the recent back office issue that was unearthed, that many bereaved families had not been repaid all the funds from their loved ones’ accounts following a bereavement claim, may have led to some withdrawing their funds, which will need to be replaced,” says Bowes.

Are the new rates competitive?

These latest rates are undoubtedly more competitive, particularly when measured against high street offerings, Bowes adds.

However, Ms Bowes said superior options remain available for those willing to look beyond well-known household names.

For instance, a £50,000 deposit over 12 months would generate £2,250 (before tax deductions) with NS&I’s one-year bond, compared with £2,335 with Sharia provider Kuwait Finance House (via the Raising UK cash platform), which pays an expected profit rate of 4.67%.

So, while NS&I’s revised rates represent a notable improvement, they fall short of featuring in the best-buy tables.