NS&I has unveiled new iterations of its one-year British Savings Bonds, offering enhanced interest rates in what one finance guru hailed as defying « the trend in a falling market ».
British Savings Bonds represent fixed-term editions of NS&I’s Guaranteed Growth Bonds and Guaranteed Income Bonds, now accessible to both newcomers and existing bondholders nearing maturity.
Starting Thursday, the fresh rate for the one-year Growth and Income variants stands at 4.18% AER (annual equivalent rate), a bump up from the prior 4.05% AER.
NS&I retail director Andrew Westhead 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. »
He added: « 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. »
Backed by the Treasury, NS&I guarantees absolute security for funds deposited with it.
Guaranteed Growth Bonds and Guaranteed Income Bonds cater to clients seeking a secure rate over a fixed term of one, two, three or five years, with no early withdrawal option on fixed-term accounts.
Savers must commit at least £500 and can invest up to £1 million per person per issue, with the choice to either withdraw or reinvest their funds after the term concludes.
Guaranteed Growth Bonds represent a lump sum investment that generates a fixed rate of interest over a specified timeframe, with interest being added to the bond annually on each investment anniversary.
Guaranteed Income Bonds constitute a lump sum investment that delivers monthly income at a fixed interest rate throughout a predetermined period.
Earlier this July, NS&I introduced fresh versions of its two, three and five-year British Savings Bonds featuring reduced rates compared to those previously available.
The organisation also decreased the rate on a Junior Isa from July 18, dropping from 4.00% to 3.55%.
Numerous analysts anticipate further Bank of England base rate reductions this year, potentially delivering another setback to savers.
Sarah Coles, head of personal finance at Hargreaves Lansdown, commented: « NS&I has bucked the trend in a falling market and boosted the rate on its one-year bonds. »
She continued: « Elsewhere, savings have been gradually dropping across the board. Fixed terms have generally held up slightly better than easy access accounts, but they’re still trending downwards.
« 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.
« The rise today still leaves it well behind the 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, commented: « The rate on offer is a far cry from the original one-year British Savings Bond that launched two years ago which proved to be a sell-out success, being pulled from sale after just five weeks.
« But back then savers were offered a generous 6.2% – a rate that now looks like a relic from another era. With interest rates edging down and other providers trimming their fixed-rate deals, NS&I has clearly tried to find a middle ground that will be attractive enough to draw in some money but not so generous that it’s swamped by demand.
« For some savers, the government-backing of NS&I will be the main draw. With full protection on deposits up to £1 million, it removes the hassle of having to split savings across multiple banks to stay under the FSCS (Financial Services Compensation Scheme) limit of £85,000.
« But for others, that safety net comes at a cost. You can get better returns elsewhere if you’re willing to forgo the government guarantee. »
