NS&I interest rates hit highest levels in a decade

The savings bank has increased the interest rates on its products to their highest levels in years.

Premium Bonds
An additional £80m in Premium Bond prizes is up for grabs in the January prize draw
(Image credit: © Peter Dazeley/Getty Images)

Millions of savers will see their savings boosted after NS&I interest rates jumped to their highest levels in years. The savings provider has lifted the rate paid on its Direct Saver and Income Bonds from 1.80% to 2.4%, the highest in over a decade, although these are still below the rates savers could get from banks.

The higher rate will kick in today (13 December 2022), benefiting more than 570,000 customers.

Meanwhile, NS&I has also increased the interest rate it pays on its Investment Account (a postal-only savings account) from 0.4% to 0.6%.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

NS&I said the changes will ensure it continues to “balance the interests of savers, taxpayers and the broader financial services sector”.

Still, with the interest rate on one regular saver account now sitting at 7%, NS&I interest rates are hardly the best on the market.

NS&I interest rates rise on all of the provider’s products

This is the second time in as many months that the savings provider has increased the rates on its savings account.

NS&I interest rates were last raised in October. At the end of the month, it lifted the rate paid on its Direct Saver and Income Bonds from 1.20% to 1.80%, the highest in over a decade.

The group also increased the rates on its Junior Isa and its Investment Account to 2.70% and 0.40% respectively.

It also announced that the rate on its fixed-term savings products would rise.

From 1 December NS&I interest rates on the one-year fixed Guaranteed Growth Bonds rose from 1.85% to 3.6%. One-year fixed Guaranteed Income Bonds saw rates rise from 1.8% to 3.5%.

As well as these interest rate increases, NS&I has boosted its Premium Bonds prize fund rate yet again. It’s the third hike this year for Premium Bond owners and means an additional £80m in prizes is up for grabs in the January prize draw. The prize fund rate is now 3%, up from 2.2% and more than double the rate of 1.4% six months ago.

NS&I interest rates have been rising in line with the rest of the market as the Bank of England has increased its lending rate. The central bank is trying to calm inflation by raising rates, which should reduce spending and increase saving, and projections suggest interest rates could rise to a high of nearly 5% next year.

What is NS&I and what does it offer?

NS&I (National Savings and Investments) is a government-owned bank backed by the Treasury, which means any money you have stored with them is 100% secure. There’s no limit on the amount you’d get back if the NS&I collapsed, which is particularly appealing to those with more money to put away as not all savings institutions will protect and return 100% of your cash should things go wrong.

The savings bank is well known for its Premium Bonds, which offer savers the chance to win between £25 and £1m tax-free every month. Investors get a unique bond number per pound they invest, meaning the higher your investment the better your odds of winning. You have to hold the bonds for a calendar month to be able to be entered into the prize draw and you don’t gain interest on your savings.

You can also purchase Green Savings Bonds, which have a 3% interest rate, fixed for three years. You cannot take your cash out until the bond reaches the end of its term and interest will be taxable once you do. You can invest as little as £100 and up to £100,000.

If you open a Direct Saver account you can take money out without notice or penalty, and you will pay tax on your gross interest. You can pay anywhere between £1 and £2m per person and manage the account online or by phone.

The maximum amount you can pay into NS&I’s Direct Isa is £20,000 a year, and you can start with as little as £1. The account is totally tax-free and you can take money out at any time without fees.

You can open a Junior Isa with £1 and save as much as £9,000 a year. You can’t take the money out, though – when the child turns 18, it is theirs to do with as they wish. The account is tax-free.

NS&I’s Income Bonds pay out interest every month and offer easy access to your money – you can take it out at any time with no fees. You will pay tax on your gross interest and need £500 to open one. The most you can invest is £1m.

With 25 million customers, NS&I is one of the largest savings organisations in the UK, however, this doesn’t mean it offers the best returns.

Right now you can earn as much as 5% on one-year fixed savings accounts, a far better deal than NS&I’s best offer. You can look at our guide to the best savings accounts to see how they compare.

By Nicole García Mérida with contributions from Rupert Hargreaves.

Nicole García Mérida

Nic studied for a BA in journalism at Cardiff University, and has an MA in magazine journalism from City University. She joined MoneyWeek in 2019.