NS&I slashes the maximum deposit limit on its popular Guaranteed Income and Growth Bonds by a whopping 99 per cent - but better rates can be found elsewhere
NS&I has this week released new issues of its ever-popular Guaranteed Income and Growth Bonds.
Whilst the rates have remained the same, the big and disappointing news is that NS&I has slashed the maximum deposit amount for new savers from £1m per person to just £10,000.
Although these bonds have not been the most competitive for some time, the big draw with NS&I accounts is that all funds deposited have unique protection, as they are guaranteed by the Government. So those who have large sums of money could have earned relatively competitive rates, without the need to split it in order to keep the funds fully protected.
With a new maximum of just £10,000 (£20,000 in joint names) savers can now earn far more elsewhere and keep their funds protected, as long as the provider they choose is part of the Financial Services Compensation Scheme (or European equivalent) – which protects deposits of up to £85,000 per person, per banking licence (€100,000 for the European version).
Last week we saw Atom Bank launching the latest version of its 1 year fixed saver, paying 2.05%. On a deposit of £10,000 that means earning £205 over the term of the bond, compared to £150 with NS&I.
For those who do not want to open a savings account via a mobile app, Secure Trust Bank is paying 1.88% gross/AER, although this needs to be applied for online – as do the NS&I bonds.
If you would like to apply by post, Close Brothers is paying 1.80% gross/AER – fixed for 12 months.
Over three years, you can earn a fixed rate of up to 2.31% gross/AER with RCI Bank* (which is covered by the French Deposit Protection Scheme). And for those who are familiar with Sharia compliant providers, Gatehouse Bank has recently launched a three year term deposit account, paying an expected profit rate of 2.33% gross/AER*.
Atom Bank and Shawbrook Bank are snapping at these providers’ heels, paying 2.30% gross/AER. For those looking to apply by post, PCF Bank and The Access Bank UK are both paying 2.20% gross AER – so £220 gross each year compared to £195 with NS&I, on a deposit of £10,000.
We all know that interest rates are low, but there is some competition in the market between the lesser-known providers, which is pushing rates in the right direction while we wait for the base rate to increase. As long as your money is protected, now is the time for savers to take a well-informed leap of faith in order to help themselves to earn as much as possible on their savings.
Although NS&I still accepts a maximum deposit of £1m per person into its easy access Income Bonds (not to be confused with the Guaranteed Income Bond mentioned above) and £2m per saver into the lower-paying easy access Direct Saver, those with large sums of money who don’t need easy access and want to earn more, now face a tougher decision – either to split it into FSCS-sized chunks or leave some of their money unprotected. Many will not have the time or patience to split their money, so will probably leave it residing with their trusted high street provider and therefore earn a pittance. Or they could search for a provider that they feel has enough financial strength to leave a larger deposit with.
If the latter is the likely option, some may turn to the ratings agencies, such as Moody’s and Fitch, to get a better indication of the banks’ financial health, although it is no guarantee of the future security of their cash. The ratings agencies themselves are keen to point out that these ratings are just their opinions of the relative credit risk of fixed income obligations. They address the possibility that a financial obligation will not be honoured as promised. Such ratings reflect both the likelihood of default and any financial loss suffered in the event of default.
Should a saver with a large sum decide that they would prefer to use a provider with a minimum A rating, they could miss out on thousands of pounds if they don’t also consider the rate on offer.
For example, if you were to deposit £500,000 into a 12 month fixed rate bond with Santander, which is rated Aa3 and A with Moody’s and Fitch respectively, you would earn just 0.50% or £2,500 in gross interest over 12 months. But if you chose a more competitive rate with Close Brothers, also rated Aa3 and A, you could earn 1.80% or £9,000 gross over 12 months.
For those happy to consider a Sharia account, there is one A rated provider (Al Rayan Bank) offering slightly better rates. For example, over 12 months the expected profit rate is 1.85% gross/1.86% AER, so on £500,000 your return could be £9,300, before tax. However, it is important to understand that rather than a fixed rate of interest, the return is an expected profit rate, so is not guaranteed.
If you would like to discuss any aspects of this article in more detail or have any other savings related query that you would like to run past us, call us free on 0800 011 9705, we’d love to hear from you.
*We are occasionally paid by some providers if you click through from our Best Buy Tables and open a savings or current account with them. We will never accept a payment that compromises in any way our independent, whole of market approach to providing information on savings products. For clarity we will indicate those companies who remunerate us with an asterisk (*).
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