Why savers need to act quickly to snap up NS&I’s market-leading 6.2% interest rate

National Savings & Investments (NS&I) made waves in the savings market when it launched a table-topping one-year fixed-rate savings product last month. 

The government-backed savings provider - best known for its Premium Bonds product - released new issues of its one-year fixed rate Guaranteed Growth Bonds and Guaranteed Income Bonds with rates of 6.2% AER. This is the highest rate the products have offered since they hit the market in 2008 and also sits at the top of MoneyWeek's best buy table for fixed savings. 

As interest rates have jumped over the past 12 months, NS&I has tried to keep up, hiking rates on most of its products, including Premium Bonds, Green Bonds, direct savings accounts and fixed savers. But it’s struggled to keep up with other savings providers, which have been far more aggressive in passing higher rates onto consumers. 

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NS&I’s fixed-rate bonds are now the best offer on the market, but savers shouldn’t sit on their hands if they want to take advantage of these offers.

It’s unlikely they’ll be around for long - we explain why. 

Why NS&I may pull the 6.2% rate

To explain why this offer may not be around for long, it is important to understand how the government-backed savings provider works.

Founded 162 years ago, NS&I’s main goal is to raise money for the government. 

For the past couple of decades, the government has been spending far more every year than it collects in taxes. It has covered the difference by borrowing money.

The UK government generally borrows money by issuing gilts. These are bonds issued and sold to investors around the world, with the process being managed by an arm of the government called the Debt Management Office (DMO). 

At the beginning of every financial year, the Treasury works with the rest of the government departments to try and figure out a financial plan for the year ahead. These calculations allow the Treasury to estimate how much the government will need to borrow. It then works with the DMO to figure out a plan.

This is where NS&I comes into play. The institution is tasked with raising a certain percentage of the overall borrowing total. For the current financial year, its target is set at £7.5bn.

This annual target is only a fraction of the estimated £200bn the government is projecting to borrow in the current financial year. But that doesn’t mean NS&I is a small player. Overall, it manages £215bn (as of March 2023) or around 7% of the government’s outstanding debt. 

As NS&I is essentially another arm of the Treasury, savings are backed 100% by the government. Savings are generally only protected up to £85,000 under the Financial Services Compensation Scheme with other savings providers. 

NS&I is an important source of funding 

NS&I is an important source of funding for the government. Borrowing money from domestic savers gives the Treasury more control, and unlike international investors, domestic savers are less likely to pull their money at the first sign of trouble, which is exactly what happened last year during Liz Truss’s disastrous, short-lived premiership.

NS&I launched its market-beating rate to attract savers. In the increasingly competitive savings market, the institution is struggling to meet its fundraising target for the year. At the last count, it was £400m behind schedule. Therefore, management will be hoping the table-topping offer will help it raise the outstanding amount. 

However, NS&I also has a duty to achieve value for money for taxpayers. That suggests it won’t keep paying over the odds to attract money. And NS&I’s offer is well over the odds. At the time of writing, the government can borrow money for a year in the gilt market for 5.1%.

That’s why NS&I’s 6.2% Growth Bond offer is unlikely to be around for long. The savings provider seems to be using the offer as a last-ditch effort to meet its funding targets. When those are met, to achieve the best offer for taxpayers, it’s likely to pull the product.