- NS&I has increased the rate on new issues of its guaranteed income and guaranteed growth fixed-term British Savings bonds (source: NS&I raises interest rates on fixed-term British Savings Bonds | NS&I Corporate Site)
- The rate on the one-year guaranteed growth bond will increase from 4.69% to 4.72%, the rate on the two-year bond from 4.67 to 4.7%, the three-year bond from 4.65% to 4.68%, and the five-year bond from 4.55% to 4.75%
- It’s responding to competition in the market that has pushed the most competitive three and five year bonds to 5%, with shorter fixes hot on their heels
- It also has its eye on a £15 billion fundraising target this financial year
Sarah Coles, head of personal finance at AJ Bell, comments:
“NS&I has sharpened up its fixed rates to attract more savers. This isn’t a surprise. It has a fairly punchy net financing target of £15 billion this financial year, and the first three months have barely made a dent in it – despite raising savings rates in May and June. We’ll have to wait and see whether this does the job, or whether a tweak to Premium Bonds could be on the cards.
“The first three months of its financial year haven’t seen it attract vast swathes of cash. It brought in less than the same time a year earlier, and overall, April saw more being withdrawn than added to the pile. Savers have better options elsewhere in a hugely competitive market.
"It’s part of the NS&I remit not to disrupt the market by offering rates that are too competitive. It also has to ensure it doesn’t pay too much interest and become poor value for taxpayers. It means that in a highly competitive market, where the other players keep nudging rates higher, there will be more rewarding options elsewhere.
"Focusing on fixed rates was a sensible move for the organisation, given that the Bank of England figures show more money has been going into these sorts of accounts overall. At a time when deals are getting better and the future of interest rates is so uncertain, more people are opting for the certainty of a fix, and NS&I could take a slice of this pie.
"If this rise doesn’t do the job, it may need to bring out the big guns and tweak the Premium Bond prize rate again. It’s likely that the cut to the prize rate in April lay behind a significant proportion of the withdrawals that month. However, it has only just boosted the prize rate this month, so it may decide to wait to see whether this brings in the kind of cash it needs, before considering whether to increase it again. Hopeful Premium Bond savers will be crossing their fingers that the savings market stays so competitive and forces NS&I’s hand.
"If you’re considering Premium Bonds, it’s always worth bearing in mind that the bonds don’t pay any interest, so if you don’t win, you don’t get a return on your money. Given that in an average month, the average bond-holder wins nothing, it means that over time, you’re likely to be losing spending power after inflation. This takes a serious toll, especially if you hold the bonds for longer. So you need to consider carefully whether the vanishingly small chance of a big win is worth this cost, or whether you would be better off in a savings account or Cash ISA.”
