NS&I versus other savings providers - where should you put your money?

We ask whether it’s worth going with the government-backed organisation, or whether other savings providers offer a better deal?

Financial crisis concept, empty piggy bank on blue background
(Image credit: Getty Images)

For anyone looking for the best savings accounts for their cash savings, now is a good time as the competition in the market is heating up. 

It seems like every day another bank or building society is hiking its savings rate.

Virgin Money recently boosted its cash ISA rate to 5.06%, while Paragon Bank has launched a best-buy 5.25% easy-access savings account. 

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At the end of August, National Savings & Investments (NS&I) also joined in, hiking its rates to attract new customers. 

Following the increase to its Premium Bond prize fund rate to 4.65% - the eighth rise in just over a year - the Treasury-backed organisation lifted the rates on its one-year fixed bonds, catapulting them to the top of the leaderboard. The new issues of its Guaranteed Growth Bond and Guaranteed Income Bond paid 6.2% AER, the highest ever rate since the products went on sale in 2008. Previously, they paid 5%.

However, the savings market is fast-paced right now, with rates whizzing up and products being pulled regularly, and NS&I withdrew the one-year savings bonds after five weeks. 

Savers may be feeling bamboozled about which savings provider and account to plump for right now.

We put NS&I to the test against other savings providers to explain the pros and cons and help you make the best decision for your money.

What are the interest rates like with NS&I?

NS&I is most famous for its Premium Bonds, but it also offers cash ISAs, easy-access savings accounts, junior ISAs and green savings bonds. It previously offered one-year bonds but these are currently not on sale.

Its ISA - which is easy-access, and called Direct ISA - pays 3%. Its Direct Saver account - an easy-access savings account that pays interest annually - pays 3.65%. The Income Bond, which is the same as the Direct Saver except it pays interest monthly, has a lower rate of 3.59%.

None of these are chart-topping - there are lots of easy-access ISAs and savings accounts that now pay above 5%. Remember, Bank of England base rate is currently 5.25%.

NS&I's junior ISA pays 4%, which seems like a decent rate. However, quite a few building societies beat this rate - although unlike NS&I, you can't open most of these online. For example, Beverley building society pays 5.5%, Coventry pays 4.95% and Skipton pays 4.75%. 

So, as things stand, none of NS&I's savings rates are market-leading, and you can potentially earn more interest by going with a competitor.

What else do I need to consider with NS&I?

There are two big benefits of saving your cash with NS&I. Firstly, 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. Compare this to Paragon Bank’s best-buy double-access account, where the maximum investment is £500,000.

So, for those with a large chunk of money that needs a savings home, an NS&I account could be ideal. 

Bear in mind that aside from Premium Bonds and cash ISAs, NS&I’s savings accounts are subject to tax. Higher-rate and additional-rate taxpayers could be caught out due to rising interest rates - find out how savings tax works in Beware the savings tax trap.

The second advantage is that NS&I is part of the government. This means it guarantees that 100% of your money is safe, as it has the unique backing of the Treasury. 

Savers do not need to worry about the limits of the Financial Services Compensation Scheme, which pays compensation of up to £85,000 per person per bank to cover any losses if a bank or building society goes bust. (You should always check before you bank anywhere that it is protected by FSCS as some banks may not be.)

You can save as much money as you like with NS&I, subject to any restrictions on the actual products, and know that all your cash is protected.

Are there any drawbacks with NS&I?

One of the drawbacks with NS&I is that it does not often offer the best saving rates. It has to balance the interests of savers, taxpayers and the government. So, customers should beware of relying on and trusting NS&I to offer competitive rates, as sometimes that is not the case. 

“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,” remarks Sarah Coles, head of personal finance at the investment platform Hargreaves Lansdown.

Someone choosing NS&I’s Direct ISA, currently paying 3%, would be leaving an extra 2.08% of interest on the table by not picking the market-leading cash ISA (Zopa Smart ISA, 5.08%).

Having said that, NS&I’s fixed bonds paying 6.2% were clearly a departure from this rule. So, if you spot a market-leading product from NS&I that you like the look of, be sure to snap it up quickly, as it's unlikely to be around for long.

Another drawback for some savers is that NS&I does not offer any sort of physical presence on the high street. Other banks and building societies have branches - although many are closing - which provides some peace of mind if a customer wants to walk in and talk to a member of staff.

In addition, NS&I increasingly runs its savings products online, so it is not always possible to manage them on the phone or by post. The green savings bond and junior ISA are both designed to be opened online, meaning savers without internet access may lose out.

Ruth Emery

Ruth is passionate about helping people feel more confident about their finances. She was previously editor of Times Money Mentor, and prior to that was deputy Money editor at The Sunday Times. 

A multi-award winning journalist, Ruth started her career on a pensions magazine at the FT Group, and has also worked at Money Observer and Money Advice Service. 

Outside of work, she is a mum to two young children, a magistrate and an NHS volunteer.