NS&I quietly hikes rates on easy access accounts

In an uncharacteristically under-the-radar move, National Savings & Investments (NS&I) increased the rates on its easy access Direct Saver and Income Bonds accounts – up from 3.65% to 4% AER on 23rd May 2024.

In addition, the state-owned bank also launched a 1-year version of its British Savings Bond on the same day, offering 4.50% AER for the growth bond and 4.41% gross/4.50%AER for the monthly income version.

The reason that these rate changes almost passed us by is because they occurred the day after the date of the upcoming General Election was announced. Therefore, due to what is known as purdah, NS&I – as a government department - is not allowed to make any public announcements in the pre-election period, in case it influences voters.

Why have we seen these increases?

In the Spring Budget 2024, it was announced that the NS&I net financing target for 2024/25 has been increased from £7.5 billion in 2023/24, (+ or - £3 billion either way), to £9 billion, with a leeway of £4 billion either way.

This target is the amount of money NS&I is tasked to raise for the Government, allowing for any money that might also be withdrawn. So, they need to be mindful that they are being asked to raise a little more this year.

However, a modest interest rate rise of this level is likely to maintain balances rather than attract new business, which is probably what they are looking to achieve for the time being, as the forecast for the net amount raised in 2023/24 is set to be £10.9 billion – a little over the excess target. This is probably due, in the main, to the launch of a market leading 1-year Guaranteed Income and Growth Bond paying 6.20% at the end of August last year, when nearly a quarter of a million savers deposited an extraordinary £7.7 billion in five weeks!

So how do these rates stack up?

1-year British Savings Bond

As we highlighted when the 3-year version of this bond was launched a couple of months ago, while these have been called British Savings Bonds, they are actually re-issuances of the NS&I Guaranteed Growth and Guaranteed Income Bonds, as opposed to anything new.

And as with the 3-year offering, although it’s not paying a rock bottom price, it is far from market-leading. In fact, over 62% of the 1-year fixed rate bonds currently available are paying more than 4.50% AER.

At the time of writing, the top 1-year bond from the whole of the market, is paying 5.22% (National Bank of Egypt UK Ltd, via the Raisin cash platform). Savers new to Raisin could also benefit from a new welcome bonus of £50 when they open and fund an account on the platform for the first time.

However, if you are looking to deposit a large sum for a year, this British Bond might be of interest as the maximum deposit is £1m and HM Treasury protects all cash held in NS&I accounts – the protection is not restricted to £85,000 as with the Financial Services Compensation Scheme (FSCS).

Direct Saver and Income Bonds

These are both easy access accounts and pay the same AER rate, however the key difference is that the Income Bonds account pays the interest out monthly at a rate of 3.93%; there is no way to roll it over, whilst the Direct Saver pays the interest annually and this can either be paid away or rolled over and compounded.

This new rate of 4% AER is not market-leading either – more than 80 other easy access accounts pay a higher rate! But it’s far more than the high street banks so should still be popular, especially given that you can deposit up to £1million into the Income Bonds account and up to £2 million in the Direct Saver. And remember, it is all protected by HM Treasury – so a great option for those with more than £85,000 that needs an accessible home but don’t want to open multiple accounts in order to keep all money protected under the FSCS.

NS&I will be hoping to keep net outflows down with these rate moves, as it’s unlikely that we’ll see any more changes ahead until the election. The rate increases would have already been on the cards and no doubt there would have been more of a fanfare of the election date announcement hadn’t scuppered their plans!

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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 Financial Conduct Authority (FCA) does not regulate cash flow planning.