NS&I launches new one-year fixed British Savings Bonds – are they any good?

National Savings & Investment (NS&I) launched new one-year fixed British Savings Bonds on 23 May. But, do they compete with the best savings accounts and why did it silently creep into the market?

It’s safe to say that the general election announcement on 22 May has taken over most fronts – it also dimmed the light on NS&I’s new savings products. The provider confirmed that although the new savings products were planned, it had to abide by pre-election guidance as NS&I is government-backed. This meant savers were only updated on the NS&I website. 

This is the first time we are seeing NS&I offer a one-year fixed saver since its 6.2% market-leading return last summer. The product saw more than 225,000 savers take advantage of the account, but it was pulled after just five weeks due to high demand. 

Try 6 free issues of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

Sign up for MoneyWeek’s free twice-daily newsletter.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Sign up

NS&I helps raise money for the government and has a new financing target to reach each year. The target renews every tax year and it uses its savings offerings and Premium Bonds to raise funds. 

In the Spring Budget, Hunt announced that the financing target for 2024/25 is £9 billion – £1.5 billion higher than last year. It means the provider will need to attract more money through its offerings. 

As a result, Hunt announced the launch of NS&I’s first ‘British Savings Bonds’ which launched on 3 April, offering 4.15%. But, experts were skeptical about how popular these would be with savers required to fix for three years. The launch of the new one-year fixed products indicates the three-year fixed British Bonds haven’t taken the savings market by storm, and NS&I needs to attract more funds. 

But, what is the return on NS&I’s new one-year fixed bonds and how does it compare to the rest of the savings market? 

How do the NS&I one-year fixed British Savings Bonds work? 

NS&I’s new one-year fixed savings accounts fall under its British Savings Bonds, offering 4.5% AER. There are two separate accounts on offer, with one giving the option to earn interest monthly, and the other yearly. 

Here’s how both of the savers work: 

• Both accounts are fixed for one year, which means the rate is also fixed for a year. But you won’t have access to your cash within the one-year term until the Bond matures.
• Start saving with £500 and save up to £1million in each bond. 
• Earn interest annually with the Guaranteed Growth Bond. 
• Earn interest monthly with the Guaranteed Income Bond. 

On both accounts, interest is paid into a nominated bank account, therefore interest is not compounded. So, which account you go for is down to how you would like interest paid to you. 

Depending on how much you save and how much tax you pay will drive how much savings income you earn. For example, if you’re looking to save a substantial amount of money, you could be pushed over your Personal Savings Allowance (PSA), which means more tax on your savings income. 

Basic-rate taxpayers have a PSA of £1,000 and anything above this sum is taxable at 20%. Higher-rate taxpayers have a PSA of £500 and any sum over this is taxable at 40%. So, anything above these sums is taxable. 

Here’s how much you would earn in interest if you saved £20,000 or £50,000 in one of the NS&I accounts after one year. 

The advantage with NS&I is the Treasury protects your savings, and you can save up to £1 million. Whereas savings accounts in the wider market generally protect up to £85,000 with the Financial Services Compensation Scheme (FSCS). 

The provider can’t confirm when it will withdraw the savers, as it depends on its demand for the savings products. 

How does NS&I’s one-year fixed bonds compare to the rest of the market?  

NS&I’s one-year fixed savers have entered the market on a better foot compared to its three-year fixed bonds, which offer 4.15% AER. But even then, the provider’s 4.5% rate can’t be deemed as competitive in relation to the rest of the market. 

You can still earn above 5% on the best one-year fixed savings accounts. Al Rayan Bank is offering 5.2% on anything between £5,000 and £1million. But note, this is a Sharia-compliant bank, therefore you earn an expected profit rate. 

If you want to save in a UK bank, SmartSave is returning 5.13% AER but requires a £10,000 minimum deposit. Or earn 5.12% AER with Tandem Bank and start saving with just £1. 

Sarah Coles, head of personal finance at Hargreaves Lansdown said: “The best rates on the market are available from smaller online banks and cash savings platforms, so they’re a sensible place to start when you’re looking for the best deal.”

The Bank of England’s base rate still stands at 5.25% since August, but the savings market has seen a dip in returns as experts believe providers are preparing for interest rates to fall this summer. 

With the rest of the savings market priced at around 5% and the base rate expected to fall might explain why NS&I’s one-year fixed saver isn’t as glamorous as its 6.2% return last summer. 

NS&I hikes rates on its other savings products

On 23 May, NS&I also raised the rates on its Direct Saver and Income Bonds from 3.65% AER to 4% AER. 

Both savers are easy-access accounts, but they differ slightly. The Income Bonds pay interest monthly and you can save up to £1million. The Direct Saver pays interest annually and you can deposit up to £2million. 

Compared to the wider savings market, these NS&I savers are not competitive. Currently, you can earn up to 5.2% on the best easy-access savings account. Ulster Bank is returning 5.2% AER but the saver requires a minimum deposit of £5,000. Cahoot (a division of Santander) is also offering 5.2% but only on up to £3,000. 

If you’re looking for something with a lower deposit, the rates do drop below the 5% mark. Kent Reliance is paying 4.96% AER on its easy-access account and only requires £1,000 to open.