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NS&I increases rates on savings accounts: how do they compare?

Government-backed savings provider boosts savings rates as inflation soars

National Savings and Investments (NS&I) has today handed a boost to savers by increasing interest rates across its variable and fixed-term accounts.

The government's savings bank says the changes will make its products more competitive, at a time when savers are struggling to get returns amid high inflation.

Here, we explain what's happening to NS&I's rates and offer advice on how they compare to the rest of the market. 

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NS&I increases rates on savings accounts

NS&I will increase rates on its variable rate savings accounts from today (21 July). These include its Direct Saver, Income Bonds, Direct Isa and Junior Isa.

Fixed-term accounts, which are no longer available to new customers, will follow suit on 1 August.

Ian Ackerley of NS&I says: 'We’re pleased to increase our interest rates, helping to ensure that more than 1.3 million savers across the country will see their savings nest eggs boosted.

'Increasing our interest rates means that our products are priced appropriately when compared with the interest rates offered by our competitors.' 

NS&I's new rates on variable savings accounts

NS&I has increased the rates on its Direct Saver, Income Bonds and Junior Isa by 0.7/0.71 percentage points, and its Direct Isa by 0.55 percentage points.

The new rates are as follows:

AccountPrevious AERNew AER
Direct Saver0.5%1.2%
Income Bonds0.5%1.21%
Direct ISA0.35%0.9%
Junior ISA1.5%2.2%

How do NS&I's rates compare?

These rate increases make NS&I's deals somewhat more competitive, but none are market-leading.

  • Direct Saver and Income Bonds: NS&I's Direct Saver is an instant-access savings account, with interest paid annually. Its Income Bonds are similar, but pay interest directly to your bank account on a monthly basis. NS&I's new rates of 1.2%/1.21% AER are relatively competitive. The best rate available is 1.6% from Al Rayan Bank (subject to a minimum £5,000 deposit) - though, as this is a Sharia-compliant product it pays an expected profit rate (EPR) as opposed to an annual equivalent rate (AER). 
  • Direct Isa: NS&I's Direct Isa is an instant-access cash Isa offering penalty-free withdrawals. Its new rate of 0.9% lags well behind the market leading 1.4% AER, currently offered by Cynergy Bank.
  • Junior Isa: NS&I's Junior Isa is a tax-free savings account for under 18s. Its rate of 2.2% is competitive, but not market leading. The best rate currently available nationwide is from Monmouthshire Building Society (2.65%).

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NS&I's new rates on fixed-term savings accounts

NS&I will also increase the rates on its fixed-term accounts, but these don't come into force until 1 August. These products aren't available to new savers, so the higher rates will only be on offer to existing savers with maturing investments. 

The new rates are as follows:

Guaranteed Growth Bonds

AccountPrevious AERNew AER
1 year0.1%1.85%
2 year0.15%2.25%
3 year 0.4%2.55%
5 year0.55%2.55%

Guaranteed Income Bonds

AccountPrevious AERNew AER
1 year0.06%1.81%
2 year0.11%2.22%
3 year 0.36%2.53%
5 year0.51%2.53%

Fixed Interest Savings Certificates

AccountPrevious AERNew AER
2 year1.3%2.15%
5 year1.9%2.45%

Why doesn't NS&I offer market-leading rates?

NS&I has often faced criticism for not offering higher interest rates, but there's a reason behind this. 

When we asked NS&I about its rates, it told us that it generally looks to position itself in the third quarter of savings tables. 

It said that as a government institution, it must strike a balance between the needs of savers (by offering fair rates) and taxpayers (by raising finance for the Treasury). 

With these factors in mind, it says it tries to ensure rates are competitive without distorting the market. 

What is the attraction of NS&I?

NS&I might not be attractive for its high rates, but savers are offered comfort by its longevity and trustworthiness. 

All funds deposited are backed by the Treasury, and there's no limit on compensation if NS&I goes bust. 

NS&I has been operating since 1861 and is best known for its premium bonds, which offer monthly prizes of up to £1 million. 

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What happens to savings when inflation is rising?

Inflation rose to 9.4% in June, the highest figure recorded since 1982. 

Soaring inflation has a detrimental effect on your savings. If the money you've put away is growing at a lower rate than the rate of inflation, it will effectively lose value because you'll be able to buy less with it.

It's now been more than a year since any savings account has matched inflation - and NS&I's improved rates don't come close - but data from Moneyfacts shows average interest rates are almost back to pre-pandemic levels, offering a crumb of comfort for savers.

At a time when the value of your cash is being eroded, it's important to shop around to secure the best rate you can. You can find the latest market-leading rates in our guide on finding the best savings account, which is updated weekly.