British Savings Bonds: NS&I reveals the rate it will pay on the new bills

  • Three-year bonds pay an interest of 4.15% over three years
  • The Chancellor announced British savings bonds in the Budget

National Savings and Investments today announced the interest rate it will pay on its new UK savings bonds.

The three-year fix pays 4.15 percent. The bonds were announced by the Chancellor in the Budget and can now be accessed on the NS&I website.

There are two versions of the bond available: guaranteed growth bonds that pay out 4.15 percent over three years and guaranteed income bonds that pay out 4.07 percent over three years.

The latter allows savers to withdraw the interest paid every month. Neither account is tax-free.

British Savings Bond: NS&I today launched its three-year fixed rate bonds, as announced by the Chancellor in the Autumn Statement

The bonds are three-year versions of NS&I’s best-selling one-year guaranteed growth and income bonds, which paid a much higher rate of 6.2 percent. These were withdrawn from sale in October.

NS&I said it plans to keep the three-year bonds for sale for an extended period.

The minimum investment in the bonds is £500 and the maximum is £1 million per issue.

The accounts are only available online and cannot be invested in by telephone or mail.

However, NS&I says on its website: ‘It is designed for online investment. However, are you unable to invest online? Then call us and we will tell you what your options are.’

The best solution for one year now pays 5.25 percent and is offered by Secure Trust Bank. A saver who puts €10,000 into this account would have approximately €10,538 at the end of the term.

The best solution for three years pays 4.75 per cent and comes from Skipton Building Society. This account has a term of 30 months. If a saver were to put €10,000 into this account, he would have approximately €10,485 after a year.

Savings experts think that the interest offered by NS&I will not be attractive enough for most savers. One expert says they could be “doomed to mid-market mediocrity.”

How much interest would you earn in a year?

At the new interest rate on guaranteed growth and income bonds of 4.15%

£5,000 – £211

£10,000 – £415

£20,000 – £846

£50,000 – £2,115

Guaranteed growth and income at the old interest rate of NS&I bonds of 6.2%

£5,000 – £319

£10,000 – £620

£20,000 – £1,276

£50,000 – £3,190

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: ‘They have gone on sale, with offers of 4.07 per cent and 4.15 per cent over three years. This is disappointing, especially after the Budget fuss, as it is so far behind the market leaders. At this rate, these bonds are in danger of disappearing without a trace.

‘NS&I always had to offer something special to make savers enthusiastic about three-year savings deals.

‘These NS&I rates are simply not special enough to convince large numbers of new savers to lock up their money for longer.’

While Andrew Hagger, founder of website Money Comms, said they may be attractive to savers with larger pots.

He said: ‘For savers with balances over £85,000, according to the Financial Services Compensation Scheme (FSCS) limit, these bonds may be attractive as you can deposit up to £1 million, which is fully protected through HM Treasury.

‘Those with smaller balances can currently get a three-year fixed rate bond paying 4.65 per cent from Hampshire Trust Bank or Close Brothers Savings.

‘That extra 0.5 per cent on the rate is worth £250 a year to someone with a balance of £50,000 and £750 over the three-year term.

‘For a saver with a £20,000 pot that’s £100 a year and £300 over three years, so worth looking at other fixed rate options.’

Bim Afolami, Minister for Economic Affairs at the Treasury, said: ‘This is a new opportunity for savers to benefit from the UK’s three-year fixed rate savings bonds, knowing their money is fully protected by the Treasury.

‘The bonds will help grow Britain’s savings culture while providing cost-effective funding for the government.’

Dax Harkins, CEO of NS&I, said: ‘British Savings Bonds exist to help people save for the longer term and support their savings goals, knowing their investments are 100 percent protected.

‘As with all NS&I savings, money is being invested back into supporting Britain through government funding.’