NS&I launches new one-year fixed rate bonds

But with lower interest rates, how do they stack up against the competition?

National Savings and Investments (NS&I) announced today (2 September) that it has launched new issues of its one-year fixed rate bonds.

Issue 86 of its 1-year fixed-term Guaranteed Growth Bonds and Guaranteed Income Bonds now pay 4.04% AER and can be opened from £500 minimum deposits.

These accounts can hold a maximum of £1 million per person per issue and give savers the choice between withdrawing their cash or reinvesting after the fixed period comes to an end. As with any product from NS&I, these bonds also come with the reassurance of being fully backed by the Treasury.

“For savers who prefer the security of NS&I, its new one-year bond paying 4.04% offers a reasonable rate of return”, commented Adam French, Head of News at Moneyfactscompare.co.uk, adding that this rate “just about outpaces current inflation forecasts, making it less likely savings are going to lose value in real terms”.

According to NS&I, these changes are part of efforts to meet its Net Financing target while balancing savers’ interests.

However, with these bonds paying notably less than the previous issues at 4.18% AER, savers could benefit from shifting their gaze to higher-paying options.

How do they compare?

As French points out, “those willing to shop around and commit to a top-paying fixed term bond with another provider could secure returns closer to 4.50%”.

Indeed, currently such returns can be found with Chetwood Bank’s 1 Year Fixed Rate Savings Account, which offers a market-leading 4.50% AER on maturity and requires a £1,000 initial investment. Close behind, AlRayan Bank’s Prosper - 1 Year Fixed Term Deposit pays an expected profit rate of 4.45% AER on maturity to those with a comparable £1,000 deposit, though keep in mind savers must apply through the Prosper Savings Platform.

Meanwhile, savers after a monthly-paying option can still beat NS&I’s offerings with Atom Bank’s 1 Year Fixed Saver; it pays the next highest rate at 4.40% AER and also offers the choice to have returns paid on anniversary. What’s more, it can be opened from just £50.

While it may seem clear cut which options to choose, those investing particularly high sums should keep an eye on their Personal Savings Allowance (PSA).

“Interest earned above £1,000, or £500 for higher-rate taxpayers, is counted as income and subject to tax, which can quickly erode the benefit of chasing the best rates of return,” explained French.

“As a result, securing a top-paying cash ISA is increasingly appealing, with its tax-free wrapper ensuring every penny of interest earned is kept out of HMRC’s reach,” he continued.

Nevertheless, it’s important to remember that only £85,000 (held with a single banking licence) is protected by the Financial Services Compensation Scheme (FSCS) should any of these standard providers go under. As such, many savers may still feel more comfortable opting for NS&I, as their money will be completely protected by the Government.