Government-Backed Savings Provider Bucks the Trend
In a surprising move that goes against the current direction of the savings market, National Savings and Investments (NS&I) has announced it is increasing interest rates on its range of fixed-term savings accounts. The Treasury-backed provider, which has the crucial task of raising funds for government projects, has upped returns by as much as 0.31 percentage points.
This decision comes at a time when many other banks and building societies have been trimming their rates. The most significant increase is reserved for savers willing to commit their money for a five-year term, a clear signal of NS&I's strategy to attract longer-term deposits.
New Rates for Guaranteed Growth and Income Bonds
The specific changes to NS&I's fixed-term products are detailed below. These new rates are available to both new customers and existing savers whose bonds have reached maturity and are looking to reinvest.
- One-year bonds have risen from 4.04% to 4.2%.
- Two-year bonds now pay 4.1%, up from the previous 3.85%.
- Three-year bonds see an increase to 4.16% from 3.88%.
- Five-year bonds receive the largest boost, jumping from 3.84% to 4.15%.
It is important for potential investors to note that these bonds, which accept investments from £500 to £1 million, do not allow for early withdrawal. Your funds are locked in for the agreed one-, two-, three-, or five-year term.
Expert Analysis and Better Alternatives
Financial experts were quick to comment on this counter-intuitive move. Sarah Coles, Head of Personal Finance at Hargreaves Lansdown, stated that NS&I's decision runs contrary to a market that has been “trending downwards.” She suggested the increase is likely driven by NS&I's need to meet its funding targets from the Treasury, especially during a period when many fixed-rate deals are maturing.
Andrew Westhead, NS&I's Retail Director, emphasised the security offered, saying the changes “give savers who want guaranteed returns a choice... while continuing to benefit from the security of the 100% government guarantee.”
However, despite the rises, Coles points out that these deals do not break into the top ten best-buy accounts. Savers willing to shop around can find more competitive rates. For instance:
- LHV Bank offers 4.46% on a one-year bond.
- JN Bank provides rates of 4.39% on both its two- and three-year bonds.
- Chetwood Bank has a five-year fixed-rate account paying 4.35%.
This NS&I announcement coincides with reports that Chancellor Rachel Reeves is considering a smaller reduction to the annual Cash ISA allowance, potentially setting it at £12,000 instead of the previously discussed £10,000, following lobbying from building societies.
