My NS&I 6.2% one year bond is maturing – where should I put my money now?

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I took out NS&I’s guaranteed fixed rate growth bond almost a year ago, which paid 6.2 per cent and is about to mature.

I put £30,000 into it as it was a top interest rate at the time, and I would now like to reinvest the money in another fixed rate savings account.

I realize rates have dropped, but what are the best deals I can get? Should I try to use a cash Isa for some of the money as I haven’t paid anything into an Isa yet this year?

Helen Kirrane from This is Money replies: When NS&I launched its blockbuster one-year guaranteed growth and income bonds, paying 6.2 percent, in September last year, they blew the competition out of the water.

No other provider could offer a rate close to that.

The result was that 225,000 enthusiastic savers like you rushed to put £10 billion of savings into bonds.

NS&I has withdrawn its best-selling bonds six weeks after launch, meaning the last of these bonds will mature on Sunday, October 6.

At a rate of 6.2 per cent over a year, according to This is Money’s savings calculator, your £30,000 investment will have returned a cool £1,913.78 – nothing to sniff at.

You said you want to reinvest your money in a one-year fixed rate bond. These are now down slightly from the August 2023 highs, but still offer more than in the past.

The best one-year bond on This is Money’s independent savings tables now pays 4.95 percent. It is offered by Union Bank of India.

If you were to reinvest your $31,913.78 in this account, after a year it would earn $1,616.07 in interest and be worth $33,529.85.

Other top one-year bonds come from Access Bank, which pays 4.8 percent, and Smartsave Bank, which offers 4.78 percent.

Opening an account with a savings platform can lead to even better rates than opening an account directly with a savings provider.

Platform Bloom* currently offers increased savings interest rates. The best at the moment one-year fix at Prosper* is from Al Rayan Bank at 5.05 percent*.

If you were to reinvest your savings in this account, after a year it would earn £1,649.48 in interest and be worth £33,563.26.

The underlying interest rate on this account is 4.8 percent, and an increase of 0.25 percent will be paid when the account matures.

A word of caution in all this though: as you have indicated, you have not used any of your Isa allowance this year and I would urge you to do so before you put all your money into a new one-year bond.

The reason for this is that you will likely be one of the 2.1 million savers who pay taxes on the interest your savings have accrued.

This is due to the high savings interest rate and the so-called Personal Savings Allowance (PSA), which determines how much interest savers can earn before they have to pay tax on it.

You get £1,000 interest tax-free if you are a basic rate taxpayer, £500 interest tax-free if you are a higher rate taxpayer and £0 interest tax-free if you are an additional rate taxpayer.

You pay tax on anything above your PSA at your normal tax rate: 20 percent, 40 percent or 45 percent.

Your savings earned you £1,913.78 on the one-year NS&I bond, so if you are a basic rate taxpayer you would pay 20 per cent tax on £913.78 for a tax bill of £182.75

If you are a higher rate taxpayer your tax bill will be £565.5 and if you are an additional rate taxpayer you will pay £861.2 as you have no personal savings allowance.

That’s why it’s crucial to use your Isa allowance when you have the money to do so. All interest earned from your savings in an Isa is completely tax-free.

For example, if you put £20,000 of your savings into the Best Money Isa, which is currently offered by Trading 212 pays a market-leading 5.1 percent*you would earn approximately €1,044.18 interest tax-free.

If you put the remaining £11,913.78 of your savings into Prosper’s one-year fix through Al Rayan at 5.05 per cent, you would earn £609.77. This is less than the €1,000 PSA, so you won’t pay tax on this if you are a basic rate taxpayer.

If you are a higher rate taxpayer, you will pay 40 percent on the amount over £500 for a (greatly reduced) tax bill of £43.9.

Another benefit of Trading 212’s cash Isa is that it is a flexible Isa, meaning you can dip into the Isa to take money out as needed. You can replace it without using up your Isa allowance, as long as you replace the money within the same tax year.

This is a big advantage for those who have the financial strength to use their full Isa allowance.

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