Following the news last month that NS&I increased the rate on the Premium Bond prize fund, this week there is good news for NS&I’s other savers. The UK's largest savings provider has announced immediate rate rises to its variable rate accounts – but those with maturing fixed rate accounts may miss out as the new higher rates will only come into effect from 1st December 2022.
In some cases the rates are actually pretty competitive and the highest they have been for around 10 years, although with the exception of the Junior ISA they are not close to being added to our best buy tables. And there is still one account that should be avoided!
So, just how competitive are these new rates and should you stay or should you go?
In summary, the following accounts were increased with affect from 25th October.
The easy access Income Bonds account – up from 1.20% to 1.80% AER.
The Direct Saver – another easy access account, has also increased from 1.20% to 1.80% AER.
For comparison, the best easy access account currently available is 2.81% with Al Rayan Bank, then 2.30% with Shawbrook Bank.
Children and ISA savers have also seen a boost this time around, which will be a relief since they have been largely ignored over the course of the year.
The Junior ISA, which was paying 2.20 is now paying 2.70% and is now featured on our Junior Cash ISA Best Buy table and the Direct ISA has increased from 0.90% to a far more competitive 1.75% - although it would need to be paying over 2% to have any chance of featuring on our Best Buy tables.
These changes will be particularly celebrated by those with very large sums as you can place up to £1m and £2m respectively per person into the Income Bonds and Direct Saver accounts – and benefit from NS&I’s unique protection as all sums placed with NS&I are protected by the Treasury.
However, those with the postal only Investment Account will be very disappointed. Until this week this account had not seen any increase at all since the rate was cut from 0.80% to 0.01% in November 2020. And although the rate has been increased this time around, it is only increasing to a lowly 0.40% - that’s no better than a high street bank. Surely it’s time to move your cash out of this account as there are many far better rates to be found elsewhere, even if you would prefer to use more traditional methods to open and use your savings accounts. The best postal easy access account currently available at the time of writing is with the Yorkshire Building Society. The Rainy Day Account Issue 2 pays 2.50% on the first £5,000 and 2% on balances above this. There is also restricted access and you can make withdrawals on just two days per calendar year. But you can open the account by post and in branch, as well as online.
And of course NS&I’s Income Bonds can be opened and managed by post too. The key downside of this account is that the interest earned must be paid away to your current account monthly, it can’t be compounded.
What about existing customers?
The accounts that are still available for anyone to purchase offer the same rate for both new and existing customers, but NS&I also has a range of Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Certificate accounts that are only available for those who already hold previous issues.
Although the new rates for these bonds are more competitive than the current rates, they are still far below the best rates available. And as the rates will only be changing with effect from 1st December, those with a bond maturing before then will only be able to roll over into the current poor rates detailed below. The good news is that better rates can be found elsewhere – take a look at our Fixed Rate Bond and Sharia Fixed Term Account tables for up to date information.
Guaranteed Growth Bonds
1 Year – currently 1.85% - new rate will be 3.60% AER
2 Year – currently 2.25% - new rate will be 3.65% AER
3 Year – currently 2.55% - new rate will be 3.70% AER
5 Year – currently 2.55% - new rate will be 3.80% AER
The best rates available elsewhere range from 4.60% AER for 1-year, to 5.10% for 5-years.
Guaranteed Income Bonds
1 Year – currently 1.80% gross monthly - new rate will be 3.50% gross/3.56% AER
2 Year – currently 2.20% gross monthly - new rate will be 3.55% gross/3.61% AER
3 Year – currently 2.50% gross monthly - new rate will be 3.60% gross/3.66% AER
5 Year – currently 2.50% gross monthly - new rate will be 3.70% gross/3.76% AER
Fixed Interest Certificates
It’s a little more complicated for Fixed Interest Certificate holders to decide whether to stay or go, as they are tax free savings bonds, so may well still be valuable to retain for some people. But the new rates are still much lower than the amount that can be achieved via a Fixed Rate Cash ISA of the same term, especially if your Certificate matures before 1st December. That said, as these accounts are no longer on sale to new customers, you need to consider your options carefully before encashing, especially if you have already used your cash ISA allowance and if your bond matures after 1st December when the more competitive rates will apply.
2 Year – currently 2.15% - new rate will be 3.40% AER tax free
5 Year – currently 2.45% - new rate will be 3.55% AER tax free
The bottom line is that these rates are much better than they were which is likely to ensure NS&I retains much of the money currently deposited. However, better rates can be found elsewhere across the board, so those who have less than £85,000 in particular, may wish to try and boost the interest they are earning further by moving their cash elsewhere
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