Why are NS&I's savings rates rarely market-leading?

National Savings and Investments (NS&I) may be bucking the overall trend by boosting rates on its fixed savings bonds, but the 4% deals are disappointingly mediocre. And that's not for the first time.

It's rare that the government-backed provider ever hits the top spot. The last time it led the market was over two years ago with its one-year accounts paying 6.2%, but its pole position was short-lived and it hasn't topped the charts since.

So why do NS&I's savings accounts consistently fail to impress? We take a closer look at why its deals often fall short and where to stash your cash instead.

NS&I hikes rates on fixed bonds

Savings rates for all types of accounts have been steadily dropping over the past couple of years, and fixed-term deals are no exception. Moneyfacts data shows the average rate for a one-year bond, for example, fell from 4.24% AER on 1 November 2024 to 3.95% at the beginning of this month.  

NS&I, however, is going against the tide by boosting rates on its range of fixed-term accounts. Guaranteed Growth Bonds pay interest annually, and Guaranteed Income Bonds pay returns into savers' nominated current accounts every month. Both allow you to invest between £500 and £1m. 

This table shows the accounts ordered by term:

What's the difference between gross and AER?

Like many providers, NS&I lists rates using the terms gross and AER. The former is best understood as the flat rate of interest that's actually paid, while the latter takes into account the effect of compounding – the snowball effect of income earned from interest growing together with your original investment.

Understanding the difference between gross and AER matters when it comes to Income Bonds. Because returns are paid out into your nominated bank account every month, interest isn't compounded. 

The lower gross rate that NS&I quotes for those products is therefore a more accurate reflection of the amount of savings income earned over the course of a year.

NS&I is unusual in formally separating its fixed-term bonds by how they pay out. With most providers, it’s the same account, and you make the decision of how interest will be paid when you apply. So when choosing, consider if you really need interest paid out, and whether it’s worth it.

How do other deals compare?

This table shows the top fixed-rate savings accounts, ordered by term:

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All of NS&I's bond rates pay less than the current market leaders. Savers with a large lump sum are missing out the most by choosing NS&I. 

For example, the current market-leading one-year fixed rate account pays 4.46%, while the NS&I version pays 4.2%. For someone with £20,000, that adds up to £52 of lost interest over the year.

The longer the length of the bond, the bigger the potential gains and losses. Using the same scenario, the difference in returns for a five-year bond is a chunky £260.

That said, all of NS&I's rates are above November's average and beat the current CPI inflation figure of 3.8%. That's important because if your rate is lower than inflation, your savings will lose value in real terms. 

• Find out more: best savings accounts

Why are NS&I rates rarely top?

Traditionally, NS&I has trodden a fine line between offering competitive enough rates to attract investment from savers – but nothing so dramatic it could impact the taxpayer or distort the savings market.

There are exceptions to the rule, though. When the one-year version of NS&I's Guaranteed Growth and Income Bonds went on sale in August 2023, they led the market with a rate of 6.2% AER. 

Sarah Coles, head of personal finance at Hargreaves Lansdown, believes that was a move by the government to pressure banks to raise rates more generally. 

The most common reason NS&I boosts rates, however, is to raise more money and hit its annual financial targets. 

An NS&I spokesperson told Which?: 'NS&I reviews the interest rates on all of its products regularly and makes changes when they are appropriate to ensure that we continue to balance the interests of savers, taxpayers and the broader financial services sector.'

Is NS&I a good provider?

Rate is important, but you should also consider other factors when choosing the right home for your savings.

We surveyed 6,008 UK adults who hold a personal savings account in August 2025 and asked them to rate their providers on overall satisfaction and likelihood to recommend, to generate a customer score. We also asked customers to rate the providers out of five stars across a range of measures, including customer service and online banking. 

NS&I was near the bottom of the table for customer satisfaction with a score of 64% (versus an average of 70%). The provider was awarded two stars for both customer service and communication, but got a slightly better three stars for its online banking services.

Take a look at our best savings accounts and providers guide for the full results.

How to make the most of fixed-term savings

Shorter-term fixed bonds currently offer the best rates. But you may find better returns in the long run with a two, three, four or five-year account. That's because if you want to reinvest your savings once the one-year bond matures in 12 months, savings rates could be significantly lower than now. 

Also, remember that higher interest rates could land you with a tax bill. 

The personal savings allowance means basic-rate taxpayers can earn up to £1,000 a year in savings interest tax-free, while higher-rate taxpayers get a £500 limit. Additional-rate taxpayers have no personal savings allowance.

In a climate of low savings rates, these allowances have been more than enough for most savers not to worry about exceeding them, but the higher rates rise, the easier it is to end up with a tax bill. 

Basic-rate taxpayers earning 4.46% AER on their savings could end up paying income tax on interest earned with around £22,422. If you're a higher-rate taxpayer, the tipping point drops to just £11,211.

• Find out more: the personal savings allowance explained

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