How do NS&I savings account rates compare? Advantages of using government-backed bank

With the Bank of England set to continue cutting interest rates, it appears time is now short if you want to secure an inflation-busting savings account. So, how do National Savings & Investments (NS&I) savings rates compare to the rest of the market?

NS&I is a government-backed savings bank. It primarily exists to raise money for the Treasury, but also to provide value for money to taxpayers and savers.

It’s best known best for its Premium Bonds, which offer cash prizes in a monthly draw. While the returns offered by this savings product aren’t guaranteed, NS&I has several accounts and bonds that do provide certainty for your money. For example, British Savings Bonds.

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So, with interest rates potentially going down even further in the near-future, how do NS&I’s savings accounts compare to the best savings rates on the market? We’ve crunched the numbers.

NS&I savings: how do its interest rates compare?

To map out how NS&I stacks up compared to the rest of the savings market, MoneyWeek has mapped out the easy-access, ISA and bond products they offer. We’ve also included the current best rates across each category.

Easy-access accounts

NS&I rates:

• Direct saver - 3.75% (variable)
• Income Bonds - 3.75% (variable)

Market-leading rates:

• Cahoot Sunny Day Saver - 5% (variable)
• Atom Bank Instant Saver Reward - 4.85% (variable)
• Principality BS Online Bonus Triple Access - 4.85% (variable)

ISAs

NS&I rates:

• Direct ISA - 3% (variable, also easy-access)
• Junior ISA - 4% (variable)

Market-leading rates for adult cash ISAs:

• Trading 212 Cash ISA - 5.17% (variable)
• Moneybox Cash ISA - 5.17.% (variable)
• Plum Cash ISA - 4.68% (variable, interest drops based on amount saved and number of withdrawals in a year)

Market-leading JISA rates:

• The Stafford Building Society - 4.75% (variable)
• Coventry Building Society - 4.7% (variable)
• The Family Building Society - 4.6% (variable)

Bonds

NS&I rates:

• Two-year British Bonds - 4.1% (fixed)
• Three-year British Bonds - 4% (fixed)
• Five-year British Bonds - 3.9% (fixed)
• Three-year Green Savings Bonds - 2.95% (fixed)

Market-leading two-year rates:

• SmartSave 2 Year Fixed Rate Saver - 4.61%
• Hodge Bank 2 Year Fixed Rate Bond - 4.6%
• Hampshire Trust Bank 2 Year Online Fixed Saver - 4.51%

Market-leading three-year rates:

• JN Bank - 4.6%
• SmartSave - 4.55%
• Oxbury Bank - 4.54

As you can see, NS&I is not offering market-leading rates on any of its savings products. Here’s a rundown of the advantages and disadvantages of saving with the bank.

What are the advantages of NS&I?

There are three big benefits of saving with NS&I. First, its savings accounts often have higher maximum balances than other banks and building societies.

For example, savers can hold up to £2 million in NS&I’s easy-access Direct Saver account. At the moment, this variable rate account offers 3.75% interest on the full amount sitting in this account.

Although this is hardly a market-leading rate, the maximum balance outshines most competitors.

So, if you have a big pot of cash that you want to grow (and, in this instance, don’t mind paying tax on), an NS&I account could be ideal.

The second advantage is that NS&I is backed by the government. This means NS&I cannot go bust and you can guarantee that 100% of your money is safe. Much of the rest of the market is covered by the Financial Services Compensation Scheme (FSCS), which only guarantees compensation of up to £85,000 per person if a bank goes bust. You should always check if a bank is covered by the FSCS before saving your money with them.

Third, if you've maxed out your ISA allowance and are worried about paying tax on your savings interest, NS&I has a unique tax-free savings product - Premium Bonds. If you win, the cash you receive is completely tax-free.

Of course, you need to win to get any sort of return on your money. But whatever you stow away in Premium Bonds is completely shielded from HMRC.

Every other non-ISA savings account in the UK is subject to tax if you exceed your annual allowance LINK. Allowances are particularly small for higher and additional-rate taxpayers, so it’s worth finding out how to avoid the savings tax trap.

 What are the disadvantages of NS&I?

One of the drawbacks with NS&I is that it rarely offers the highest saving rates. The reason for this is that it has to balance the interests of savers, taxpayers and the government. So, you cannot rely on NS&I to be market-leading.

Sarah Coles, head of personal finance at the investment platform Hargreaves Lansdown, says: “For the vast majority of the time, NS&I applies the time-honoured rule that it wants to offer something in the middle of the pack, so it attracts enough cash, but without paying over-the-odds for it.”

Someone choosing NS&I’s Direct ISA, which currently has a rate of 3%, would be sacrificing an extra 2.17% of interest by not picking the top cash ISA on the market (Trading 212, 5.17%).

Very occasionally, NS&I does offer a big-hitting rate. Its 6.2% one-year fixed bond was chart-topping until its withdrawal after just five weeks in late-2023. So, MoneyWeek would advise acting quickly to snap up any market-leading products from NS&I, as they’re unlikely to hang around for long.

Another disadvantage of NS&I for some savers is that it does not have a physical presence on the high street. Additionally, some NS&I accounts are online-only. While bank and building society branches are closing at a rapid rate, most major brands are likely to have at least some sort of presence in your area. And if they don’t, you can often bank with them over the phone or through the post.