Autumn Statement 2016: savers to benefit from new NS&I bondNS&I bond to launch next year, paying 2.2%

23 November 2016

Savings

Savers will be offered a new National Savings & Investments (NS&I) three-year bond, paying 2.2%.

Philip Hammond announced the plans as part of his first Autumn Statement as Chancellor. 

There has been little for savers to cheer about this week, after Moneyfacts revealed that average Isa rates across the board have fallen below 1% for the first time since it began collecting data. However, the Autumn Statement has offered a ray of hope in the shape of a new NS&I bond, available next spring. 

Read about the rest of the big stories from the Autumn Statement 2016.  

New National Savings & Investments (NS&I) bond

There will be a new Treasury-backed bond for savers, expected to pay an interest rate of 2.2% gross for three years, open to those aged 16 and over. 

The NS&I Investment Guaranteed Growth Bond will only be available for 12 months from spring 2017. Mr Hammond said around two million people will benefit. 

Savers can open one bond each – via the NS&I website, by post or over the telephone – and invest a minimum of £100 and a maximum of £3,000. The expected rate of 2.2% may be adjusted to reflect market conditions when the product is launched. 

The current market-leading three-year bond from Ikano Bank pays 1.63% (this account is protected by the Swedish Deposit Insurance Scheme, up to £75,000 per person, not the UK Financial Services Compensation Scheme). 

Last year, over-65s jumped at the chance to pile cash into NS&I Guaranteed Growth Bonds, dubbed 'pensioner bonds', offering market-leading rates of 2.8% for one year and 4% for three years. While more generous than the new NS&I bond, these were only available to over-65s. 

All NS&I products are 100% backed by the Treasury.

How does the new NS&I bond compare? 

The rate expected to be offered by the new NS&I bond is higher than any other three-year fixed-rate savings account or cash Isa available at the moment. In the graph below, we've compared the returns you'd get if you deposited £3,000 in these accounts to what you'd get with the new NS&I bond.

Some current accounts offer better returns than the NS&I bond on balances of £3,000. Nationwide's FlexDirect account pays 5% on balances up to £2,500 in the first year, allowing you to earn up to £125. Tesco Bank pays 3% on balances up to £3,000, so you could earn up to £90 a year in interest.

However, you have to meet certain criteria to be able to earn interest on current accounts, and the banks can choose to cut these rates at any time. See our current account tables for more information.   

Which? Money Compare table: savings accounts and Isas - hundreds of accounts compared

No delay for the lifetime Isa

Lifetime Isas weren't mentioned by the Chancellor. The launch will go ahead as planned in April 2017, despite critics arguing that it undermines auto-enrolment and carries a hefty withdrawal charge if you access money early (before age 60) for any reason other than buying your first home.

This tax-free savings vehicle is designed to help young people get on the property ladder or build savings for retirement.

The Financial Conduct Authority (FCA) has proposed strict rules that require lifetime Isa providers to issue risk warnings to savers, and remind them about the impact of any charges or penalties, as well as allowing 30 days after a sale to cancel. 

Any adult aged between 18 and 39 can open the lifetime Isa and save up to £4,000 each year. The government pays an additional 25% bonus up to your 50th birthday.

Find out more: the lifetime Isa – a new tax-free savings vehicle for under 40s

No change to personal savings allowance

In the 2015 Budget, savers were told that the personal savings allowance would take 95% of taxpayers out of savings tax altogether. 

Since it was introduced in April this year, all interest from savings is paid gross, which means tax is no longer deducted by your bank or building society. 

Basic-rate taxpayers can earn up to £1,000 in interest from all savings (including current accounts). The annual allowance falls to £500 for higher-rate (40%) taxpayers. 

Some people were calling for an increase to this allowance, but no changes have been announced. 

Find out more: personal savings allowance – all the details on this tax break for savers

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