NS&I has relaunched the popular one-year saving bond and boosted rates across the board.
This will be a boon to those with large cash savings, given they can invest up to £1m rather than split the money across different providers to meet the £85,000 Financial Services Compensation Scheme limit.
The government-backed British Savings Bonds do, however, lag behind the market, with the current market-leading one-year fixed rate accounts paying around 4.65%, while the NS&I version pays 4.05%.
“Despite the lower interest rates, the bonds are likely to be hugely popular, particularly the one-year offering,” says Laura Suter, director of personal finance at AJ Bell.
“When the one-year version of these bonds went on sale in late 2023 they sold out in five weeks, with more than a quarter of a million savers putting more than £10bn in the accounts.
“At the time the accounts paid 6.2%, so the lower rate might mean we don’t see such a clamour for the accounts.”
Alongside the one-year fixed bond is a five-year relaunch, meaning that for the first time in more than 15 years, savers can buy four different fixed-rate income or growth bonds from NS&I.
What to consider before buying British Savings Bonds
Limits: Each person can save a minimum of £500 and up to £1m in the British Savings Bonds.
No withdrawals: Unlike some previous versions of these bonds, you can’t withdraw your money early.
Bond types: If you pick the “Income Bond” version, you’ll get the interest paid out each month into your bank account, meaning you can spend it, which may be a better option for retirees.
If you don’t need the income, you might be inclined to pick the “Growth” option, which means the interest is rolled up and added to the bond each year, and then you can only access it at the end of the fixed term.
Tax: While Premium Bonds are tax-free, these bonds aren’t, meaning once you breach the Personal Savings Allowance limit, you’ll be taxed on the interest at your income tax rate.
Because the growth version of the bonds rolls up the interest until the bond matures, it means all that interest will fall into one tax year – potentially single-handedly breaching your allowance.
Safety: A big appeal of NS&I is that they are backed by the government, so they are seen as the safest place to keep your money.
However, other banks and building societies are protected by the Financial Services Compensation Scheme, which covers up to £85,000 of money per person, per financial institution.
