- NS&I has announced new issues of its Guaranteed Growth and Guaranteed Income bonds (collectively known as British Savings Bonds)
- But rates for the one, two, three and five year options have all been cut
- A Guaranteed Growth bond fixed for two years will pay 3.98% gross/AER, with the Income option cut to 3.91% gross (3.98% AER)
- British Savings Bonds let you save for a fixed amount of time at a fixed rate of interest
- You can put away anything between £500 up to £1 million
Charlene Young, senior pensions and savings expert at AJ Bell, comments:
“Hot on the heels of the latest Bank of England base rate cut, the government savings provider NS&I has slashed rates on new issues of its popular Guaranteed Growth and Income bonds across the board.
“Despite the interest rate cuts, the fact that these accounts are government-backed means many savers have huge brand loyalty to NS&I. But those worried about protection offered for cash savings should keep in mind that customers with bank accounts in the UK now enjoy greater protection under the Financial Services Compensation Scheme (FSCS). The limit for deposit takers, like banks, building societies, and credit unions went up on 1 December 2025 from £85,000 to £120,000 per banking licence.
“Savers should remain alert to the changes in the savings market and explore the best rates where they can. The best available two-year fix elsewhere on the market will currently pay around 4.15% AER, some 17 basis points higher than NS&I. The gap is even higher when you extend the term to five years, where the best rate will pay around 4.3%, versus the new 4.05% AER on offer from NS&I.
“They also need to watch out to avoid an unexpected tax bill with these accounts. While Premium Bonds from NS&I are tax-free, British Savings Bonds are not, meaning you may owe tax on the interest if you exceed your Personal Savings Allowance. With the growth version of the bond, all the interest is taxed when it’s paid out at the end of the term, which could push you over your tax-free allowance.”
Three things to ask yourself before you buy
- Interest is taxable: While NS&I’s Premium Bonds are tax-free, these bonds aren’t, meaning you could pay tax on the interest you earn above your tax-free allowances, just like other cash accounts. If you’re likely to face a tax bill for the interest you might want to weigh up whether an ISA would be better for your cash savings.
- Do you want the interest now or later? The ‘Income Bond’ version will pay interest each month into your bank account. This means it is a good option if you need it to top up your income each month. However, if you don’t need the income the ‘Growth’ option means the interest is rolled up and added to the bond each year, meaning you can only access it at the end of the fixed term. With growth bonds, the interest is taxable in the year your bond ‘matures’, so large amounts of interest could tip you into another tax bracket.
- NS&I is government-backed, but do you need that? 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 now covers up to £120,000 of money per person, per financial institution after a recent hike in December 2025. This means that your money is theoretically as safe in any other bank with FSCS protection as it is with NS&I, although people with large amounts of savings may prefer to put their money with NS&I rather than split it into £120,000 pots with different providers.
