National Savings and Investments (NS&I) is one of the best-known names on the UK's savings market.
The treasury-backed provider is popular for its Premium Bonds. But it has also grabbed headlines in the past when compared with the best savings accounts on the market – for example its market-leading 6.2% one-year fixed bond last summer, and more recently the launch of its new British Savings Bond.
Having made two more people millionaires through the May Premium Bond draw, you may be wondering whether NS&I could be a good destination for your money. So, how safe is NS&I – and can you trust it to look after your money? Here's everything you need to know.
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How safe is NS&I?
The answer is very safe. The savings institution is 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.
When the government is spending more than it gets 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 bills) on these obligations once, and that was way back in the 1400s.
The government also borrows via NS&I. Every year when Treasury beancounters 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 £2.6trn, of which around £300bn is looked after by NS&I.
But 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. NS&I savers also tend to be more sticky than international investors, giving the government more control over its debt.
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. And if that happens, savers would have bigger problems to deal with anyway (for example, who’s going to pay for the 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 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 will issue market-leading products, if it’s in danger of missing its annual fundraising target, 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. Here’s a list of the most popular products offered by NS&I:
Direct savers
These work in the same way as other easy-access savings products and can be managed online.
Guaranteed Growth Bonds
These are similar to other fixed-rate bonds sold in 'issues', each with a specific interest rate for the duration of the bond. Savers can invest up to £1m per person per issue in these bonds. One of two NS&I British Savings Bonds falls under the Guaranteed Growth Bonds, requiring savers to fix their cash for three years. The Bond is returning 4.15% AER and interest is paid at the end of the three-year term.
Guaranteed Income Bonds
Currently, one of the NS&I British Savings Bonds also sits under the Guaranteed Income Bonds offering 4.15% AER under a three-year fixed term. In contrast to the Guaranteed Growth Bond, interest is paid monthly rather than at the end of the three-year period.
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, Premium Bonds 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, and two Premium Bond holders win the £1 million jackpot each month.
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