NS&I brings back 1-year bond paying 4%

Hot on the heels of last week’s rate hikes from National Savings & Investments (NS&I), the good news keeps on coming. This week, the Treasury backed savings provider has re-introduced its 1-year Guaranteed Growth and 1-year Guaranteed Income Bonds that have been off sale since 2019. 

Not only that, but the rates are pretty competitive – 4% AER for the Guaranteed Growth Bond and 3.90% gross/3.97% AER for the Guaranteed Income Bond.

How much can I save in NS&I bonds and should I bother?

The latest Issue 70 of the Guaranteed Growth Bond is paying 4% AER, fixed for 1 year, and the Guaranteed Income Bond Issue 70 is paying 3.90% gross/3.97% AER – also fixed for 12 months. The key thing to remember is that like most fixed term bonds, there is no access to your capital until maturity. If you choose the Guaranteed Income Bond, this will pay the interest out monthly but there is still no access to the capital deposit, so you must be sure you won’t need it for the term of the bond.

While these rates are competitive, there are better rates available on the open market. Smart Save is currently at the top of the 1-year table paying 4.17% AER and pipping Charter Savings Bank paying 4.16% AER. The minimum on the Smart Save Bond is £10,000 while it’s £5,000 for the Charter Bond and there are 17 other providers paying between 4.01% and 4.15% AER currently. Charter Savings Bank is offering the best monthly income option (as an alternative to the Guaranteed Income Bond) paying 4.08% monthly/4.16% AER.

The minimum on the NS&I bonds is £500 but it’s the fact that you can deposit up to £1m into the NS&I bonds that makes this interesting for larger savers.

All cash deposited with NS&I is guaranteed by HM Treasury, compared to the maximum protection per bank or building society via the Financial Services Compensation Scheme (FSCS), which is £85,000. So, if you have £1m you could deposit the whole amount with NS&I, albeit with a lower return – or spread your cash between 12 different providers to keep it safe.

There is also the cash platform option which allows those with large cash holdings over the FSCS maximum to make just one application but then have access to multiple savings providers, thereby offering a simple way to open many savings accounts with minimum hassle. For more information on the platform option contact us on info@savingschampion.co.uk.

Rates for existing customers have also been increased

If you are an existing fixed rate bond holder, you can also benefit from the new 1-year rates. 

But there are also two, three and five year Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates accounts which are still only available for existing customers with maturing products, which will also benefit from new interest rates when their Bonds and Certificates mature, if they decide to reinvest. 

It’s also good to see these new rates being applied immediately – in the past there has been a delay which was incredibly frustrating for those with bonds maturing before the new rates were live. 

Guaranteed Growth Bonds – rates with effect from 1st February 2023

• 1 Year - new rate is 4.00% AER – up from 3.60% (previous issue)
• 2 Year – new rate is 4.20% AER – up from 3.65% (previous issue)
• 3 Year – new rate is 4.20% AER – up from 3.70% (previous issue)
• 5 Year – new rate is 4.25% AER – up from 3.80% (previous issue)

The best rates available elsewhere range from 4.36% monthly.4.45% AER for 2-years, to 4.50% for 5-years.

Guaranteed Income Bonds - rates with effect from 1st February 2023

• 1 Year – new rate is 3.90% gross/3.97% AER – up from 3.50% gross/3.56% AER (previous issue)
• 2 Year – new rate is 4.10% gross/4.18% AER – up from 3.55% gross/3.61% AER (previous issue)
• 3 Year – new rate is 4.10% gross/4.18% AER – up from 3.60% gross/3.66% AER (previous issue)
• 5 Year – new rate is 4.15% gross/4.23% AER – up from 3.70% gross/3.76% AER

The best rate available elsewhere is 4.36% monthly/4.45% AER for 2-years, 3-years and 5-years.

Fixed Interest Certificates

It’s a little more complicated for Fixed Interest Certificate holders to decide whether to stay or go, as they are tax free savings bonds, so may well still be valuable to retain, especially as the new rates are once again pretty competitive. But they are still lower than the amount that can be achieved via a Fixed Rate Cash ISA of the same term. That said, as these accounts are no longer on sale to new customers, you need to consider your options carefully before encashing, especially if you have already used your cash ISA allowance.

• 2 Year – new rate is 4% - best 2-year cash ISA is 4.11% AER tax free
• 5 Year – new rate is 4.05% - best 2-year cash ISA is 4.20% AER tax free

The bottom line is that these rates are much better than they were which is likely to ensure NS&I retains much of the money currently deposited. However, better rates can be found elsewhere across the board, so those who have less than £85,000 in particular, may wish to try and boost the interest they are earning further by moving their cash.

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