NS&I has raised the interest rate on its five-year savings bond to an "attention-grabbing" 5.17% AER. New issues of the Government-owned savings bank's bonds went on sale this week, offering savers one, two, three and five-year fixed term options.
Expert reaction to the rate rise
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said NS&I's increased rates were "likely to grab the attention of savers looking for a guaranteed return". She cautioned that people will need to deposit at least £500 to apply for the accounts online.
Ms Springall also warned savers to decide on their opening amount with care, as it won't be possible to add more later or withdraw the money early. NS&I's Guaranteed Growth Bonds pay interest annually on the anniversary of the bond, while the Guaranteed Income Bonds pay interest monthly.
What the new rates offer
Andrew Westhead, NS&I retail director, said: "We're pleased to be increasing interest rates across our one, two, three, and five-year British Savings Bonds, responding to changes in the wider market and giving savers the certainty of a guaranteed return for the duration of their chosen term. Alongside these improved rates, customers continue to benefit from the reassurance that all money invested with NS&I is 100% secure and backed by HM Treasury."
The new interest rate on the five-year Growth bond is 5.17% gross/AER, with the Income option at 5.06% gross/5.17% AER. Savers can invest as much as £1 million and have the option to withdraw their cash after the fixed-term or reinvest it with NS&I.
Comparing the market
Moneyfacts said that NS&I's five-year Guaranteed Growth and Income Bonds offer the most competitive return at 5.17% AER. The financial comparison service said savers can also secure rates of more than 5.00% AER with the bank's two- and three-year counterparts.
Ms Springall welcomed the bank's move, saying NS&I needs to strike a balance between attracting savers and meeting its financing requirements, adding: "It's really positive to see improvements to their bonds."
Moneyfacts' analysis shows, however, that "better returns" are available elsewhere, pointing to its current "best" fixed rate savings rate of 5.35% AER from DF Capital's 5 Year Fixed Rate Deposit (Issue 9) and 5 Year Fixed Deposit – Annual Interest (Issue 9).
Anyone at risk of earning enough interest to exceed their tax-free Personal Savings Allowance might benefit from an Individual Savings Account (ISA). Shawbrook Bank's 5 Year Fixed Rate Cash ISA – Issue 67 currently offers the most competitive fixed ISA return of 5.25% AER on a minimum initial deposit of £1,000.
Ms Springall urged savers to act fast to lock in the best deals, explaining that if a provider attracts enough deposits, it can pull a product from the market. She recommended acting quickly to take advantage of competitive offers.
MoneySuperMarket's "best" fixed rate bond rates include OakNorth's Fixed Term Savings Account, which offers 5.13% AER for 12 months with a minimum deposit of £1 and maximum £500,000. National Bank of Kuwait's Raisin UK - 1 Year Fixed Term Deposit has a rate of 4.92% AER. The least you can pay in is £1,000 and the most is £120,000.
The final account included in MoneySuperMarket's current ranking is National Bank of Egypt UK's Raisin UK 1 Year Fixed Term Deposit. It offers 4.91% AER for 12 months. The minimum deposit is £10,000 and the maximum is £120,000.
