Today’s Autumn Statement delivered on its promise to support the nation's savers, that have suffered one of the worst periods in living memory for record low interest rates. But is it enough?
The Chancellor announced plans to launch a new savings bond via National Savings & Investments (NS&I), which will be launched in spring 2017.
The bond will be market leading with an indicative rate of 2.20% gross/AER, fixed for three years. Interestingly, unlike the 65+ Guaranteed Growth Bonds, these new bonds will be available to those aged 16 or over but capped at just £3,000 per account and is expected to be available for 12 months from spring 2017. More details will be announced in the Budget. The Chancellor expects around two million people to take advantage of the new bond.
The Chancellor said that this is a response to the low interest rates that have affected savers in recent years. “Low interest rates have helped our economy recover, but reduced the interest people can earn on the cash savings”.
Similarities are apparent with the 65+ Guaranteed Growth Bonds, dubbed ‘Pensioner Bonds’ by the media, which were introduced in January 2015. The accounts paid interest rates that were head and shoulders above the rest of the market, with 2.80% gross/AER for 1 year and 4.00% gross/AER for 3 years. The key differences to the proposed new bond is that that the 65+ Guaranteed Growth Bonds were restricted to those aged over 65, but there was a more generous upper limit of £10,000, although at the time we felt even this was fairly low. It’s also very telling of the continued deterioration of the savings market in that the 3 year bond 65+ Guaranteed Growth Bonds paid 4% in January 2015, compared to this indicative rate of just 2.20%.
The 65+ Guaranteed Growth Bonds proved extremely popular, with a huge number of enquiries here at Savings Champion at launch and well-publicised issues experienced by many in terms of contacting NS&I and the application process itself. Whilst we would expect a lot of interest in this new bond, especially when you consider that the top interest rate on the market at the moment for a three-year fixed rate bond is 1.62% gross/AER, the limitation on the amount you can invest does make it less appealing.
Any initiative to help savers is of course a good thing, even more so in the current low interest rate environment. The big issue for many will be the restricted amount. That said, at least the bond isn’t there just to support the wealthier savers.
Whilst the Chancellor himself acknowledged that those with modest savings need help, there are alternatives available now that pay much better returns on lower amounts. For example, you can get 5% AER from Nationwide Building Society on balances up to £2,500 on its FlexDirect Current Account or Tesco Bank’s Current Account, which pays 3% AER on balances up to £3,000. If the Tesco rate remained the same for two years, that’s £278 interest over the term. Some £76 more than you could earn on the indicative rate of the new bond.
However, the Tesco rate isn’t guaranteed and could change, but we never know, next year could also see the first rise in the Bank of England base rate in over nine years, so better rates could be on the horizon. Here’s hoping!
To review your current savings or for help finding the very best rates, call us on 0800 321 3581