Government plans could see NS&I boost interest rates

National Savings & Investments (NS&I) has been busy bumping up the interest rates on its range of savings products in a bid to attract more customers over the past year. 

And there’s a good chance the government-backed savings provider will continue to hike rates over the coming year as Jeremy Hunt taps savers for cash to fund the country’s growing deficit. 

NS&I tries to keep up with the competition 

Over the past year, NS&I has bumped up the rates on its products as the Bank of England has hiked the base rate, leading to increased competition on savings accounts. 

It has bumped up its premium bond prize rate five times, boosted the rates on its green savings bonds, and brought back its one-year fixed bonds.

NS&I is a funding source for the Treasury and, as such, is 100% guaranteed by the government. 

And with the country’s budget deficit running at one of the highest levels in recent history, the government has asked NS&I to try and raise more money for the state. 

So, what does this mean for savers and could they see better rates from NS&I?

Why could NS&I boost its rates?

In the current tax year, NS&I has a funding target of £6bn. It’s on track to raise £6.1bn.

However, in his Spring Budget Jeremy Hunt set the bank a new funding target of £7.5bn with an option to raise an additional £3bn.

This means NS&I has to attract more business. There are a few things it could try in order to do so. 

The target’s increase to £7.5bn “isn’t a huge leap, which means we’re unlikely to see the need for brand new products in order to stimulate demand,” says Sarah Coles, head of personal finance at Hargreaves Lansdown. 

“Instead, it could hike the maximum holding in various accounts – including Premium Bonds,” adds Coles. “However, it would mean attracting more cash from the super-wealthy, which doesn’t help it towards its goal of enabling more people to build a savings habit, which makes this more improbable.”

“What’s far more likely is it deciding to boost rates overall to keep savers keen. This is likely to mean it keeps pace with any further rises in the market overall, and may also need to become slightly more competitive.”

The rate on Premium Bonds is currently 3.3%, up from 3.15% previously. 

NS&I has also increased the rates on its Direct Saver and Income Bonds accounts to 2.85% from 2.65%, but some easy-access savings accounts still offer better rates. 

The rate on its one-year fixed bonds is 4%, which makes them a strong contender against the best one-year fixed savings accounts.

NS&I has hit its funding target for the year, so it’s unlikely we’ll see any rate increases before April. But after that, savers could stand to benefit. 

“As ever with NS&I, it’s highly unlikely to be market-leading,” says Coles. “However, given the fact it is 100% guaranteed by the Treasury, there will be some savers who don’t need NS&I to be the best rate on the market to be very attractive indeed.”

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