National Savings & Investments (NS&I) has relaunched its popular Guaranteed Growth and Guaranteed Income bonds – but how do they compare to the rest of the market?
The release marks the first time that guaranteed fixed-rate bonds have gone on general sale since December 2009, according to the NS&I.
Which? takes a look at the returns on offer and how the new deals stack up against other fixed-rate bonds.
What the NS&I bonds pay
Savers can choose between a one-year or three-year fixed-rate Growth or Income bond.
The one-year NS&I Guaranteed Growth Bond pays 1.50% gross AER while the three-year NS&I Guaranteed Growth bond offers a 2.2% gross AER return.
The interest from the Growth Bond is calculated daily and added to your investment each year, so will suit those that want to focus on growing the value of their savings.
The one-year Guaranteed Income bond offers a slightly smaller rate of 1.46% gross AER, while the three-year Guaranteed Income Bond pays 2.17% gross AER.
The interest from the Income bond is calculated daily and paid into a nominated bank account every month, so it’s a better option if you want to earn a regular income from your pot, rather than grow it.
|Rate (gross AER)||Interest paid|
|NS&I Guaranteed Growth One-Year Bond||1.50%||Annually|
|NS&I Guaranteed Growth Three-Year Bond||2.20%||Annually|
|NS&I Guaranteed Income One-Year Bond||1.46%||Monthly|
|NS&I Guaranteed Income Three-Year Bond||2.17%||Monthly|
The last time the NS&I Guaranteed bonds went on sale, they paid up to 4.40% gross AER – which goes to show just how far saving rates have fallen over the last seven years.
Savers aged 16 or over can open an account with £500 and invest up to £1m. Investments can be made individually, jointly or can be held in a Trust.
The bonds are only available to buy online, but they can be managed online, over the phone or by post.
How the NS&I bonds compare
NS&I’s new one-year Guaranteed Growth and Guaranteed Income bonds are competitive, but not market-leading.
For one-year fixed-rate deals, the top of the market is currently the BLME Premier Deposit Account, which offers a rate of 2% gross AER on deposits from £25,000. For savers with smaller amounts of cash, the Wesleyan Bank One-Year Fixed Rate Deposit Account pays 1.88% gross AER on deposits from £1,000.
With AER rates of 1.50% and 1.46%, the NS&I’s one-year bonds are just inside the top 20 when it comes to the best returns on offer in this range.
However, when looking at three-year fixed-rate savings, the NS&I three-year bonds are more attractive.
This puts the 2.2% gross AER offered by the NS&I Guaranteed Growth Bond and the 2.17% gross AER rate available on the NS&I Guaranteed Income Bond in the top five for three-year deals.
- Shop for fixed-rate bonds using Which? Money Compare
Do you have to pay tax on the interest?
The interest you earn in both types of NS&I bonds is liable for tax and will count towards your personal savings allowance (PSA) for the year.
Are savings protected?
The new NS&I bonds, like all NS&I products, are 100% backed by the Treasury.
That means you can save much more than the £85,000 limit that normally applies to savings accounts protected by the Financial Services Compensation Scheme (FSCS).
This will be particularly attractive to those with significant sums of money who would prefer to keep their cash in one place rather than in several different accounts.
Can you withdraw money early?
Unlike most other fixed-rate bonds, the NS&I Guaranteed Growth and Guaranteed Income bonds can be cashed in early.
However, there is a penalty of 90 days’ interest on the amount you cash in and you must keep a balance of at least £500 invested to keep the bond open.
Is it worth opening an NS&I bond?
It’s clear that NS&I is keen to attract new savers with the revival of these popular products.
Earlier in November, NS&I also upped the rate on variable savings accounts and premium bonds.
However, if you’re chasing the best rate on your savings, there may be better deals available from other providers.
That said, the NS&I bonds are 100% guaranteed by the government and offer the ability to take cash out before the end of the fixed term – so might be better option for you, depending on your circumstances.
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