National Savings & Investments (NS&I) has re-released its popular Guaranteed Growth and Guaranteed Income bonds – but instead of changing the interest rate, it’s reduced the amount you can save.
The maximum you can invest into the new issue of the bonds has been slashed from £1m to £10,000, which will impact those with larger savings pots looking to stash their money safely in one account.
Which? explains what you need to know about the new NS&I savings bonds and how they compare to other fixed-rate bonds on the market.
What do the new NS&I bonds pay?
Savers can still choose from a one-year or a three-year fixed Growth or Income bond.
The interest rates available on the new issue of the NS&I bonds haven’t changed but the amount you can invest has been cut from £1m to £10,000 if you are a new saver.
However, those that are reinvesting cash from maturing NS&I bonds won’t be subject to the £10,000 cap and will get a £1m limit.
|Interest rate (AER)||Minimum investment||Maximum investment||Interest paid|
|NS&I One-Year Guaranteed Growth Bond (Issue 63)||1.50%||£500||£10,000||Annually|
|NS&I Three-year Guaranteed Growth Bond (Issue 58)||1.95%||£500||£10,000||Annually|
|NS&I One-year Guaranteed Income Bond (Issue 63)||1.46%||£500||£10,000||Monthly|
|NS&I Three-year Guaranteed Income Bond (Issue 58)||1.92%||£500||£10,000||Monthly|
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.
By contrast, 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.
Savers aged 16 or over can open an account with £500. Investments can be made individually, jointly or can be held in a Trust.
The bonds are only available to open online, but they can be managed online, over the phone or by post.
How do the new NS&I bonds compare?
The rates on offer with the NS&I bonds can easily be beaten by other providers.
Atom Bank’s one-year fixed-rate deal pays a much higher 2.05% AER on deposits from £50 up to £100,000.
Meanwhile, on three-year deals you can get a rate of 2.33% AER with Gatehouse Bank on deposits from £1,000 up to £1m.
We’ve picked out the market-leading rate across fixed-rate bonds in the table below.
|Provider||Interest rate AER||Minimum investment||Maximum investment||Interest paid|
|Atom Bank One-Year Fixed Saver||2.05%||£50||£100,000||Annually|
|Gatehouse Bank Two-Year Fixed Term Deposit||2.14%*||£1,000||£1,000,000||On maturity|
|Gatehouse Bank Three-Year Fixed Term Deposit||2.33%*||£1,000||£1,000,000||On maturity|
|Vanquis Bank Four-Year Fixed-Rate Bond||2.52%||£1,000||£250,000||Monthly|
|Gatehouse Bank Five-Year Fixed Term Deposit||2.68%*||£1,000||£1,000,000||On maturity|
*Expected profit rate
Source: Which? Money Compare
What if I have a £1m to deposit?
For savers with large amounts of cash, investing with the NS&I is attractive as the entire balance of the account is backed by the government – meaning there’s no chance of being left out of pocket if the NS&I went bust.
By contrast, most savings deposits with other providers are protected under the Financial Services Compensation Scheme (FSCS), which will only reimburse you up to £85,000 per provider.
So, while plenty of other savings deals will allow you to save up to £1m, it’s probably not a good idea to take up the offer. If you have £1m in cash savings you will need to split your pot into 12 different accounts to ensure it is fully protected.
Alternatively, while the Guaranteed Growth and Guaranteed Income bonds now have reduced limits, you could consider another NS&I account – for examples, the Direct Saver offers deposits of up to £2m while Income Bonds are open to sums of up to £1m.
Why has NS&I cut the savings limit?
NS&I is a government-backed savings provider that is given targets on how much it should raise from savers each year.
When the Growth and Income bonds were first brought back in December last year the rates were competitive and the maximum investment limit attractive, so savers piled in.
Six months on NS&I needed to curb the appeal of the product to keep it on track with the amount of money it wants to bring in.
Instead of cutting the rate NS&I has chosen to limit the amount savers can invest.
Jill Waters, Retail Director, NS&I, said: ‘Guaranteed Growth Bonds and Guaranteed Income Bonds have been on sale since 1 December 2017 and have proven extremely popular.
‘We are pleased to have given savers over six months to invest larger amounts, but these changes to the investment limit will allow us to manage demand in order to achieve our Net Financing target for 2018-19 while continuing to deliver positive value to taxpayers.’
Is it worth opening an NS&I bond?
If you’re chasing the best rate for your savings the NS&I bonds aren’t the best home for your cash.
However, unlike most other fixed-rate bonds, the NS&I Guaranteed Growth and Guaranteed Income bonds can be accessed before the end of the term, subject to 90 days’ interest on the amount you cash in.
So if you are looking for a fixed-rate deal with some flexibility the NS&I bonds could still work for you.
Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.