NS&I comparison: how does it compare to other savings providers?

We look at 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
NS&I comparison: how does the public-backed bank stack up against other savings providers?
(Image credit: Getty Images)

For anyone looking for the best savings account, you may be wondering whether it's worth going with a bank or building society – or the government-backed National Savings & Investments (NS&I). If this sounds like you, our NS&I comparison is here to help.

NS&I offers Premium Bonds as well as cash ISAs and easy-access savings accounts. The provider also offers fixed savings accountsNS&I’s one-year fixed savings account, which returns 4.5% AER, launched at the end of May. The provider also offers a three-year fixed saver under its British Savings Bonds

Despite the new products on the market, there have been cuts in the savings market in anticipation of the Bank of England cutting interest rates this summer. NS&I also cut the Premium Bond prize fund rate in March from 4.65% – its highest rate since 1999 – to 4.4%. This means there are an estimated 73,000 fewer prizes on offer, according to the provider. 

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

In light of the falling rates, savers may be feeling confused about what savings provider and account to plump for right now. We put NS&I to the test against other 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, fixed savings accounts, junior ISAs and green savings bonds

Its easy-access ISA called the Direct ISA pays 3%. Its Direct Saver account – an easy-access savings account that pays interest annually – returns 4% AER, up from 3.65% at the end of May. Its Income Bonds, are the same as the Direct Saver except they pay interest monthly and also offer 4% AER. 

NS&I’s fixed savings accounts aren’t offering interest at the levels it was last summer, when its market-leading one-year fixed bond returned 6.2% AER. 

Days before we entered the new tax year, NS&I launched its British Savings Bonds. It initially launched two three-year fixed savers – the Guaranteed Growth Bonds pay interest annually and the Guaranteed Income Bonds offer interest monthly. Both return 4.15% AER. 

And just a day before Rishi Sunak announced a general election, NS&I released one-year fixed accounts under the British Savings Bonds. These savers return 4.5% AER. 

None of these are chart-topping. The reason for this is that NS&I has to deliver value for taxpayers, so its focus is not solely on delivering the best returns for its customers. There are still many easy-access ISAs and savings accounts that pay above 4%. Remember, the Bank of England base rate is currently held at 5.25% for the sixth time in a row. 

NS&I's junior ISA pays 4%, which seems like a decent rate. However, quite a few building societies beat this rate. But, unlike NS&I, you can't open most of these online. For example, Coventry Building Society pays 4.95% and Loughborough Building Society pays 4.8%, but both require you to visit a branch to open an account. 

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 three big benefits of saving your cash 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. Compare this to Cahoot’s Sunny Day Saver account, offering 5.2%. While the account has an attractive return, the rate is only applicable on balances up to £3,000. No interest is earned on any money above that.

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

The second advantage is that NS&I is basically 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 institution 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.

Third, if you're worried about paying tax on your interest, and have already maxed out your cash ISA, NS&I has a unique tax-free savings product. The prizes you win with Premium Bonds are completely tax-free. While you may not win any prizes (although you could also win the £1 million jackpot), you can be sure that HMRC won't take any of the cash.

Aside from Premium Bonds and cash ISAs, all savings accounts are subject to tax. Higher-rate and additional-rate taxpayers could be caught out due to rising interest rates – find out how to avoid the savings tax trap.

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 2.17% of interest on the table by not picking the market-leading cash ISA (Plum, 5.17%).

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. The 6.2% saver was only on the market for five weeks due to high demand and is no longer available. 

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
Contributing editor

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.

With contributions from