NS&I increases savings rates again – are they any good?

National Savings & Investments (NS&I) has increased the rates on more of its savings accounts, following the recent announcement and subsequent increase to the Income Bonds, Direct Saver and Premium Bond rates. The Treasury-owned bank has also hiked the rates it is offering on its Guaranteed Growth and Guaranteed Income Bonds as well as the above-mentioned accounts.

The one-year bonds, which are currently on sale to new customers as well as existing, increased to 5% AER, from 4%. The two and three-year term rates have also been increased for those rolling over maturing bonds, as they are not on general sale at the moment. The new rate is 5.10% for both terms.

These latest changes came two weeks after NS&I announced that it was increasing the rates on the easy access Direct Saver and Income Bond accounts, from 2.85% to 3.40% AER, making these accounts more competitive, but still paying far less than the top rates on offer. You can earn over 4.50% AER on the top paying easy access accounts on the market.

And the top 1-year and 2-year bonds currently available are paying 6.05%, with the top 3-year paying 6.00%.

The rate of interest on the UKs best loved savings vehicle, Premium Bonds has also seen the second hike to the prize fund rate. The rate increased to 3.70% for the July prize draw, but it will be 4% for the August draw, the best rate since 2007 – adding an estimated extra £30 million to the prize fund and around 450,000 more prizes, improving the odds of each £1 bond winning a prize from 24,000 to 1 to 22,000 to 1.

NS&I doesn’t have to pay top rates to attract cash for a number of reasons – but in particular it is the unique level of protection that attracts wealthy savers. All cash deposited with NS&I is secured by HM Treasury, while cash deposited with other savings providers is protected up to £85,000 by the Financial Services Compensation Scheme (FSCS). Since you can deposit up tot £2m into the NS&I Direct Saver alone, you can see how attractive the Treasury protection is.

While the bank is not supposed to offer market leading rates which would mean commercial banks have to work even harder to raise the funds they need, as it is given a target of how much in needs to raise each tax year, it amends its rates accordingly.  The current target is £7.5 billion – with a leeway of £ billion either way. However, in April and May this year, according to the latest data from the Bank of England, NS&I raised a net £2.4 billion. If this trend continued for the whole year, they would take on an extra £14.42 billion – double the current target! So perhaps, as interest rates have risen rapidly elsewhere in the last couple of months in particular, NS&I has seen some significant outflows which means they’ve had to take action.

This is good news for savers and it just goes to illustrate the power of voting with your feet. If you don’t accept poor savings rates and move your cash, the savings providers will have to work harder to attract your money.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The accounts and rates mentioned in this article are accurate and correct as of 24/07/2023.

The Financial Conduct Authority (FCA) does not regulate cash advice.