National Savings & Investments (NS&I) has launched new issues of its two and three-year British Savings Bonds, on sale from today. However, the rates are around 50 basis points lower than its previous offering.
Even before these cuts, the bonds did not feature in MoneyWeek’s round-up of the best savings products, but the gap between the top fixed-rate bonds and NS&I’s offering has now widened further.
Savers can earn 3.6% AER on NS&I’s two-year bonds. On the three-year bonds, they can earn 3.5% AER or 3.49% AER, depending on whether they opt for the growth or income version.
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| Bond | Old rate (AER) | New rate (AER) |
| Guaranteed Growth Bonds (2-year) | 4.1% | 3.6% |
| Guaranteed Income Bonds (2-year) | 4.09% | 3.6% |
| Guaranteed Growth Bonds (3-year) | 4% | 3.5% |
| Guaranteed Income Bonds (3-year) | 4% | 3.49% |
NS&I used to offer a five-year bond as well, but this is now closed to new investors. Existing customers who renew a maturing five-year bond can do so at a rate of 3.4% AER (down from 3.9% AER previously).
This is not the first time rates have been reduced this year. NS&I also cut the rates on its British Savings Bonds in September. Just last week, it also announced a cut to a separate product – its much-loved Premium Bonds. The prize rate will fall from 4.15% to 4% in January.
The latest moves are perhaps unsurprising given today’s falling interest rate environment. The Bank of England has cut interest rates twice since the summer, bringing the base rate from 5.25% to 4.75%.
Why has NS&I cut rates?
NS&I says the changes will help it meet its net financing target, while “continuing to balance the interests of savers, taxpayers and the broader financial services sector”.
The state-owned savings provider raised £11.3 billion last year, overshooting its funding target of £7.5 billion (plus or minus £3 billion). This raised fears that the provider could cut rates across some of its products going forward. NS&I has raised £3.3 billion so far in 2024/25 against a full-year target of £9 billion (plus or minus £4 billion).
“NS&I has an obligation not to be too far ahead of its competitors, so cuts right across the savings market were always going to put it under pressure to reduce rates,” says Sarah Coles, head of personal finance at Hargreaves Lansdown. She says the cuts could suggest NS&I is “ahead of the game on fundraising”, meaning it can afford to make its products less attractive.
Should you buy NS&I’s British Savings Bonds?
Even before the latest cuts, you could earn a higher rate from other providers, but the gap has now widened. The top two and three-year rates on the market are currently 4.6%, both paid by Atom Bank. Both bonds allow you to invest up to £100,000 – although remember that only £85,000 is protected under the Financial Services Compensation Scheme.
One of the advantages of NS&I’s British Savings Bonds is that they allow you to invest up to £1 million – and all of this is protected as NS&I is backed by the British government. With this in mind, “these bonds may still be appealing to savers with big pots who are happy to forgo higher interest rates available elsewhere,” says Rachel Springall, finance expert at comparison site Moneyfacts.
“It’s worth remembering that NS&I need to ensure they are on course to meet their net financing targets, so they must price their accounts accordingly,” she adds. “NS&I traditionally would react to any interest rate moves within the wider markets, to ensure they are not sitting head and shoulders above the competition. With this in mind, NS&I are not immune to rate cuts, so savers do need to keep an eye on their accounts.”
Of course, NS&I isn’t the only provider to cut rates in recent months. The wider market has taken a hit in response to the latest decisions from the Bank of England.
With rates expected to fall further next year – albeit more slowly than previously expected – savers may want to fix their savings sooner rather than later to secure a guaranteed rate. Just remember that you won’t be able to access the money for the duration of the fixed period. This means any emergency funds should be kept in an easy-access savings account.
What is the difference between NS&I’s income and growth bonds?
As well as being able to select the duration of your bond (two or three years), NS&I allows you to choose between an ‘income’ and a ‘growth’ version. This will affect how you receive the interest payments.
The growth bonds accrue interest daily but pay it annually on the anniversary of the investment. The interest payment is added to the bond. Income bonds also accrue interest daily but pay it into a nominated bank account on a monthly basis.
Income bonds can be a good option if you are looking to supplement your monthly earnings. They might be popular with retirees, for example, who are no longer earning a salary and want to boost their retirement income. Meanwhile, if you don’t need a regular income boost, you might be better opting for a growth bond to benefit from the power of compound interest.
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