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NS&I launches 2.2% savings bond – but it can’t beat inflation

Consumer Prices Index remains at 2.3%

National Savings and Investments has finally launched its long-awaited three-year savings bond, paying 2.2% a year. But with inflation remaining at a stubbornly-high 2.3% for the second consecutive month, is it still worth taking out?

The Guaranteed Growth bond was pitched as a marketing-leading savings account when it was first announced in 2016. The account allows you to save a maximum of £3,000, which means you can earn a total of £66 in interest every year.

Nationals Savings and Investments savings products have been hugely popular in the past, but can it be beaten by any other savings products?

NS&I Guaranteed Growth bond in detail

How long is the bond on sale for and how can I apply?

NS&I says that the Guaranteed Growth bond will be on sale for 12 months from today. But it is only accepting online applications – you won’t be able to invest in the account over the phone or by post.

How much can I save into the bond?

You have to deposit a minimum of £100 and can save a maximum of £3,000 in the bond.

How is interest paid on the bond? Will I pay tax on the interest I earn?

Interest is accrued on a daily basis and paid on out on an annual basis. It will be paid ‘gross’, meaning that tax will not be automatically deducted.

Basic-rate taxpayers can earn £1,000 in interest every year without paying income tax, while higher-rate taxpayers can earn £500. The maximum interest you can earn with the NS&I bond is £66.

Can I make withdrawals?

Yes – but you’ll face a penalty of 90 days’ interest. But this will only apply to the amount you take out, if you’re not withdrawing your full investment.

Watch out though – NS&I says that if you ‘cash in within 90 days of buying your Bond, you’ll get back less than you invested.’

NS&I Guaranteed Growth – is it a market leader?

At the moment, NS&I offers the best three-year fixed rate account, according to figures from Which? Money Compare.

Best three-year fixed rate savings products
Account AER Maximum investment
NS&I Guaranteed Growth Bond 2.2% £3,000
Secure Trust Bank 2% £1 million
Oak North Bank 1.91% £100,000
Vanquis Bank 1.9% £250,000
Charter Savings Bank 1.87% £250,000

However, there are other options worth considering. Regular savings accounts allow you to deposit a maximum amount of between £200 and £500.

Some pay as much as 5% (M&S Bank, First Direct, Nationwide and Santander) but you need to be current account customers in order to get access to the accounts.

Kent Reliance has no such restrictions. You can save £500 a month (over a year, that’s equivalent to the maximum £3,000 NS&I allows you to save) and you can earn 3.5%. Over a year, that would net you £113 worth of interest.

Tesco Bank has just relaunched its 3% interest deal on the Tesco Current Account, on a maximum of £3,000.

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