National Savings and Investments (NS&I) is one of the best-known names in the UK savings market. The treasury-backed provider is popular for its Premium Bonds. While NS&I products don’t currently beat the interest rates offered on the best savings accounts, there are some reasons why the government-backed savings provider could be appealing.
After two more savers became millionaires in the February Premium Bond draw, you may be wondering if NS&I could be a good destination for your money. So, how safe is NS&I? Can you trust it to look after your money? Here's everything you need to know.
Is NS&I safe?
Yes, NS&I is very safe. It’s backed by the UK government (specifically, HM Treasury), which means all savings are guaranteed 100% by the government. This is the case because NS&I is essentially an arm of the government.
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When the government is spending more than it receives in taxes, also known as a budget deficit, it has to borrow money to fill the gap. This borrowing is usually done by issuing what are known as gilts or bonds. These IOUs have to be paid back with interest over a set period of time – usually decades. The government has only defaulted (not paid its debts) on these obligations once, and that was way back in the 1400s.
The government also borrows via NS&I. Every year when Treasury ‘bean counters’ are trying to work out how much the country will need to spend and borrow, they charge NS&I with raising a percentage of the borrowing total. The UK government has outstanding borrowings of around £2.8 trillion, of which around £230 billion is looked after by NS&I.
So, why would the government use NS&I rather than issue more gilts? It can generally raise money via NS&I more cheaply than on the international debt markets.
Can NS&I go bankrupt?
Due to its structure, NS&I can’t go bankrupt. For savers’ money to be in jeopardy, the UK government itself would have to be on the verge of bankruptcy. If that happens, savers would have bigger problems to deal with (for example, who’s going to pay for the NHS and police?).
There’s also no chance NS&I will be taken over by another bank or private equity firm. It’s highly unlikely the government would decide to sell it off as it wouldn’t want to lose control of that much public debt.
So, NS&I can’t go bankrupt, nor can it run out of money. That means any savings you have with the institution are 100% guaranteed.
By way of comparison, just £85,000 of your savings are covered under the standard Financial Services Compensation Scheme (FSCS). The FSCS applies to all UK regulator-approved financial institutions, including building societies and banks.
Is NS&I a good place to keep my money?
If you’re worried about the stability of other financial institutions then NS&I is a good place to keep your money. But it’s worth keeping in mind that NS&I has a duty to taxpayers to achieve the best possible outcome by keeping costs low for the government. It does not have a duty to offer the best savings deals.
What’s more, due to its position in the market, demand for its products is often high, so it does not need to try too hard to get business by offering high interest rates. While the organisation sometimes issues market-leading rates, it has no obligation to do so.
What are the best NS&I products?
NS&I offers a range of products. They’re designed to appeal to a wide range of people and the line-up changes from time to time. It’s worth seeing how these products compare to the rest of the savings market, as a cut to the base rate could push savings rates down. Here are some of the most popular products currently offered by NS&I.
Direct Savers
This works in the same way as other easy-access savings products and can be managed online. NS&I's Direct Saver offers 3.5% AER. If you're on the hunt for the best easy-access savings account, it’s worth checking how the NS&I Direct Saver compares to the rest of the market.
Guaranteed Growth Bonds
This is similar to other fixed-rate bonds sold in 'issues', each with a specific interest rate for the duration of the bond. NS&I’s Guaranteed fixed bonds are offering up to 3.6% AER and you can fix your investment for between two and three years. Savers can invest up to £1 million per person per issue in these bonds. Interest is paid when the account matures. You might want to check the best fixed rate accounts on the market to see how NS&I’s fixed bonds compare.
Guaranteed Income Bonds
The Guaranteed Income Bonds offer up to 3.6% AER when you fix your cash for two to three years. In contrast to the Guaranteed Growth Bond, interest is paid monthly, rather than when the account matures.
Index-linked Savings Certificates
These are very limited products, sold in small issues that tend to be snapped up quickly. Each year, the investment's value moves in line with a measure of inflation called the Retail Prices Index (RPI), and they must be held for the full term. If you decide to cash out early, you’ll have to pay a penalty. Currently, Index-linked Savings Certificates are not on sale.
Premium Bonds
One of the most popular products from NS&I are Premium Bonds, which offer the chance to win tax-free cash prizes. For each £1 invested, you get a chance of winning. If you save £500, you'll get 500 bonds and 500 chances to win a cash prize. Cash prizes vary between £25 and £1 million, with two Premium Bonds holders winning the £1 million jackpot each month. Returns are not guaranteed with Premium Bonds, so savings can be eroded by inflation. NS&I has launched a prize checker tool so savers can check for Premium Bonds prizes each month.
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