How do NS&I savings account rates compare? Advantages of using government-backed bank
NS&I savings accounts offer security and tax-efficient options for your money. But how do its interest rates compare to the rest of the market?
With the Bank of England poised to cut 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 - 4% (variable)
- Income Bonds - 4% (variable)
Market-leading rates:
- Ulster Bank Loyalty Saver - 5.2% (variable)
- Cahoot Sunny Day Saver - 5% (variable)
- Chip Easy Access Saver - 5% (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 - 5.1% (variable)
- Plum Cash ISA - 4.92% (variable, interest drops to 3% if you make more than three withdrawals in a year)
- Chip Cash ISA - 4.84% (variable)
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 - 4.25% (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:
- UBL UK Two-Year Fixed Term Deposit - 4.61%
- Cynergy Bank Fixed Rate Bond (two-year) - 4.6%
- Union Bank of India Fixed Rate Deposit (two-year) - 4.6%
Market-leading three-year rates:
- DF Capital Three-Year Fixed Rate Deposit - 4.55%
- GB Bank (Raisin UK) Three-Year Fixed term Deposit - 4.55%
- Birmingham Bank Three-Year Fixed Rate Bond - 4.53%
Market-leading five-year rates:
- DF Capital Five-Year Fixed Rate Deposit - 4.4%
- GB Bank (Raisin UK) Five-Year Fixed term Deposit - 4.4%
- Birmingham Bank Five-Year Fixed Rate Bond - 4.36%
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 4% interest on the full amount sitting in this account.
Although this is hardly a market-leading rate, the maximum balance outshines most competitors. Take Santander’s Edge Saver. It offers a 6% rate - but only on balances of up to £4,000. You won’t earn anything on any total beyond this amount.
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 LINK. 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 2.1% of interest by not picking the top cash ISA on the market (Trading 212, 5.1%).
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.
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Henry Sandercock has spent more than eight years as a journalist covering a wide variety of beats. Having studied for an MA in journalism at the University of Kent, he started his career in the garden of England as a reporter for local TV channel KMTV.
Henry then worked at the BBC for three years as a radio producer - mostly on BBC Radio 2 with Jeremy Vine, but also on major BBC Radio 4 programmes like The World at One, PM and Broadcasting House. Switching to print media, he covered fresh foods for respected magazine The Grocer for two years.
After moving to NationalWorld.com - a national news site run by the publisher of The Scotsman and Yorkshire Post - Henry began reporting on the cost of living crisis, becoming the title’s money editor in early 2023. He covered everything from the energy crisis to scams, and inflation. You will now find him writing for MoneyWeek. Away from work, Henry lives in Edinburgh with his partner and their whippet Whisper.
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