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Budget 2017: savings changes

A new NS&I bond from April paying 2.2% for three years

The big Budget news for savers is that a new National Savings and Investments (NS&I) bond, available from April, will pay 2.2% over three years. Philip Hammond confirmed the rate in his first Budget speech today, and also provided details on the Isa allowance for the new tax year. 

The new Guaranteed Growth Bond is available to anyone over 16. The rate of 2.2% matches the current best buy three-year fixed-rate on the market, but it comes with a maximum investment of just £3,000, significantly less than the £100,000 maximum on offer from Atom Bank.

TOP THREE-YEAR FIXED-RATE SAVINGS ACCOUNTS
 Provider Rates Maximum investment
NS&I bond 2.2% £3,000
Atom Bank 2.2%  £100,000
Secure Trust Bank 2%  £1,000,000
Charter Savings Bank 1.85%  £250,000
United Trust 1.8%  £500,000
Masthaven 1.76%  £250,000

Which? Money Compare table: Search for more fixed-rate savings accounts.

Is the NS&I bond any good?

Inflation is already at its highest level for two-and-a-half years and the Office for Budget Responsibility has forecast inflation will hit 2.4% this year – if this is the case, a rate of 2.2% won’t cover the rising cost of living.

This new bond isn’t as generous as the NS&I pensioner bond, launched in January 2015. This was available to over-65s only, and paid 2.8% over one year or 4% over three, on deposits of up to £10,000.

This time around, you can only earn interest on up to £3,000, and although a rate of 2.2% matches the current best buy from Atom Bank, savers were hoping for more after recent increases in the wider fixed-rate market.

When Philip Hammond announced the new NS&I bond in his first Autumn Statement as Chancellor, he told savers to expect a rate of 2.2%. Back then, this easily beat the best three-year bond from Ikano Bank, which paid 1.63%. Today, top rates over three years have increased considerably, but the NS&I bond rate hasn’t moved with them.

The new NS&I bond at a glance

  • UPDATE How do I open the new NS&I bond? Savers over 16 can open a maximum of one bond each via the NS&I website only.
  • How long will they be available? The new bonds will be on sale for 12 months. The government expects around two million people to benefit.
  • How much could I earn? Interest is paid on balances of £100 and £3,000 only. The most you could earn is £66 a year.
  • Is interest tax free? No, interest counts towards your personal savings allowance along with your other savings income.
  • Can I withdraw money early? Yes, but as with other NS&I bonds, early withdrawals incur a loss of 90 days’ interest.
  • What happens at maturity? You can roll over into a new bond, or withdraw the money and invest in somewhere else.
  • What are the alternatives? High interest current accounts offer better returns and NS&I premium bonds are another popular alternative – we weigh up the pros and cons in this guide.

UPDATE

Which? Money spoke to NS&I who confirmed that the new ‘Investment Guaranteed Growth Bonds’ will be an online-only product. A spokesperson said:

‘This will give customers a simple and straightforward way to buy and manage their bonds. However, exceptions will be made on a case-by-case basis for any potential customers with accessibility issues preventing them from applying or managing online.’

Lifetime Isa from April 2017

This new Isa product is being introduced to help under-40s save for their first home or build a retirement pot, boosted with a Government bonus.

The lifetime Isa will be available in just a few weeks, from 6 April 2017, but this week Which? Money revealed that only a handful of stocks and shares Isa providers are ready to launch products in time. We’ll keep you updated here as more providers confirm their position.

Check your Isa allowance 

If you haven’t used up your Isa allowance, consider topping it up as you can’t carry forward any unused allowance.

Some (not all) Isas are flexible, under new rules introduced in 2016, which means you can withdraw money, and then pay it back in, without that withdrawal counting towards your allowance. So, if you invested the maximum £20,000 in 2017/18, and then took out £5,000, you could top up your Isa back up to £20,000 again – as long as it’s within the same tax year.

If you’re unsure, ask your provider if you have a flexible Isa before you make any withdrawals.

Adult Isa allowance Lifetime Isa allowance Help to Buy Isa allowance Junior Isa allowance
2016/17 £15,240 n/a £3,000 £4,080
2017/18 £20,000 £4,000 £3,000 £4,128

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