NS&I cuts interest rates on British Savings Bonds

NS&I has slashed the interest rates on its British Savings Bonds to “reflect the changing savings market”.

The move follows savings rate cuts from other providers in the wake of the Bank of England reducing the base rate from 5.25% to 5% last month.

It means three Guaranteed Growth Bonds and three Guaranteed Income Bonds now have lower interest rates for savers opening them from today onwards. These accounts are part of NS&I’s British Savings Bond range.

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NS&I’s decision to cut savings rates will raise concerns that Premium Bonds could be next. The prize fund rate is currently 4.4%, after being lowered from 4.65% in March.

“The fact NS&I is cutting rates today demonstrates that it’s not desperately keen to fill its boots, so it isn’t going to be comfortable with paying over the odds. This doesn’t bode well for Premium Bond savers,” notes Mark Hicks, head of Active Savings at Hargreaves Lansdown.

He adds that “there’s every chance NS&I could cut its variable rates sooner rather than later, which could mean the Premium Bond prize rate gets less generous”.

The government-backed savings organisation overshot its fundraising target last year, raising £11.3 billion against a £7.5 billion target. This could mean NS&I tries to discourage customers, and one way to do that would be by reducing the Premium Bond rate.

NS&I says any decisions it makes needs to “balance the interests of savers, taxpayers and the stability of the broader financial services sector”.

We look at which savings rates are being cut today, and how they compare to the wider market.

British Savings Bonds: the full list of interest rate cuts 

NS&I is cutting its rates by up to 0.35 percentage points. Here are the new interest rates for the British Savings Bonds:

• Two-year Guaranteed Growth Bond - 4.25% (4.6% previously)
• Two-year Guaranteed Income Bond - 4.17% gross / 4.25% AER (4.5% gross / 4.6% AER)
• Three-year Guaranteed Growth Bond - 4% (4.35%)
• Three-year Guaranteed Income Bond - 3.93% gross / 4.00% AER (4.26% gross / 4.35% AER)
• Five-year Guaranteed Growth Bond - 3.9% (4.1%) 
• Five-year Guaranteed Income Bond - 3.83% gross / 3.90% AER (4.02% gross / 4.10% AER)

If you’re wondering about the difference between a growth bond and income bond, the former has interest added to the account each year, while income bonds pay monthly interest.

What are the best fixed savings rates on the market?

If you’re looking for the best interest rate and are happy to fix your savings for two years, you can earn up to 4.72%, according to Moneyfacts.

This top rate is offered by Ziraat Bank on the Raisin savings platform. The next best two-year fixed savings rate is 4.7%, which is offered by several providers: Hampshire Trust Bank, Isbank, RCI Bank UK and Zenith Bank (UK).

These are far higher than NS&I’s new two-year rate of 4.25%.

In terms of three-year savings rates, the top rate is 4.51% (offered by Hampshire Trust Bank and UBL UK). This easily beats NS&I’s 4% rate for a three-year Guaranteed Growth Bond.

And for five years, NS&I’s rate cuts also mean that unsurprisingly it does not offer the highest-paying five-year bond on the market.

Birmingham Bank boasts the best five-year savings rate, at 4.36%, according to Moneyfacts. This compares to 3.9% on NS&I’s five-year bonds.

For more top savings accounts, whether you’re looking for easy-access, regular saver or fixed rates, check out our round-up of best savings rates.