NS&I raises rates on its one-year bonds, but how competitive are they?

This is a welcome increase after NS&I recently cut returns across some of its other products.

National Savings and Investments (NS&I), the Government-backed savings provider, announced today (24 July) that it has increased the rate on its one-year fixed savings products.

The new issues of its Guaranteed Growth Bonds and Guaranteed Income Bonds now pay 4.18% AER, compared to the 4.05% AER paid on the previous issues. These accounts require a minimum deposit of £500 and can hold a maximum of £1 million per individual, which is 100% backed by the Treasury.

"In launching this new Issue, NS&I continues to balance the interests of its savers, taxpayers and the broader financial services sector – and to work towards its annual net financing target,” commented Andrew Westhead, Retail Director at NS&I.

This latest rise is encouraging news for supporters of NS&I, as the provider lowered the interest rates on its longer-term bonds at the start of the month and cut the prize fund rate on its Premium Bonds from 3.80% to 3.60% (effective from the August draw).

“Despite general sentiment suggesting that base rate could be cut again this year, it is promising to see some providers increasing their rates and remaining competitive,” noted Caitlyn Eastell, spokesperson at Moneyfactscompare.co.uk.

“NS&I is a trusted, reputable brand which provides full capital security, making these bonds more attractive options for wealthier savers with large pots that exceed the Financial Services Compensation Scheme’s (FSCS) £85,000 limit,” she added.

Choosing the right one-year bond

Even though Eastell explains that the 4.18% AER offered on NS&I’s one-year bonds outpaces inflation, meaning savers could get a real return on their money, she points out that “the bond is still a long way off the market-leading rates for its term which currently exceed 4.50%”.

Indeed, savers could access an expected profit rate of 4.60% AER with AlRayan Bank’s Prosper – 1 Year Fixed Term Deposit. Requiring a minimum deposit of £10,000, savers should note that this market-leading rate is only available via the Prosper savings platform (more details on our chart).

Alternatively, Conister Bank and GB Bank both pay a competitive 4.53% AER on their one-year bonds, which require smaller opening deposits of £5,000 and £1,000 respectively.

Although the leading rate on one-year bonds has edged higher in recent weeks, this trend isn’t certain to continue as the base rate (which can affect savings rates) is expected to fall at least once more this year, potentially as soon as August.

As a result, now may be a good time to review your savings and lock in a guaranteed interest rate to protect your money from any potential rate drops.

But, in addition to the interest rate, it’s important to consider all the features of a one-year bond to find the right option for you, including the deposit requirements, the ways of managing the account and any eligibility requirements you may need to meet to open an account and access the advertised rate.

Savers with large sums in savings should also confirm that their money will be fully protected if a provider collapses, for example. Each provider protects up to £85,000 per individual under the FSCS but, with some providers sharing a banking licence and their FSCS limit, it’s worth doublechecking your money is safe.

This is why some savers may prefer to deposit their money with NS&I, despite the lower returns, as their money will be fully protected by the Government.