Yahoo Finance NS&I rates soar – here’s how to find the best deal
NS&I has relaunched two savings bonds with its highest interest rates in more than a decade, with savings deals now rivaling the returns of the stock market.
The state-backed savings institution has brought back its “Guaranteed Growth Bonds” and “Guaranteed Income Bonds” after pulling the accounts in 2019.
The one-year fixed-rate bonds, which pay 4pc and 3.9pc respectively. But are they a good deal, should you fix now and are there better options available?
Anna Bowes, of the analyst Savings Champion, said the accounts could be a good choice for those who want to lock away large sums of money for a year, but said rivals were still offering better deals.
“I would always suggest you go for the best rates,” she said. “Whilst this deal from NS&I is competitive, it’s not the best on the market.
“The exception to that is someone who has a very large sum that they want to place with one provider. You can put £1m in these NS&I accounts.”
Savings at NS&I are fully protected, unlike at other banks, where deposits of up to £85,000 are guaranteed under the Financial Services Compensation Scheme, a lifeboat fund, in case of financial collapse. If banks are part of the same financial institution, such as Halifax and Bank of Scotland, which are both part of Lloyds Bank, the total amount that is protected could apply to the entire group, meaning your protection is limited even further.
James Blower, of the Savings Guru, another analyst, said wealthier savers could earn more while remaining protected, if they were willing to split up their savings across different banks paying the highest rates. However, this approach requires the time-consuming process of setting up multiple accounts.
Which account should I choose?
Out of the two NS&I accounts, the growth bonds, which pay out slightly more, are the obvious choice for those who want the best returns, but the interest is only paid at the end of the one-year term.
Those who want monthly returns to top up their income should opt for NS&I's income bonds.
However, savers who want higher returns on deposits of less than £85,000 can find them elsewhere in the market.
If they have at least £10,000, they can get the highest rate on the market, which is 4.16pc from SmartSave.
This account pays interest at the end of the 12-month term.
Savers who want monthly income can opt for Atom Bank’s one-year bond at 4.15pc, although it is only available via mobile-app banking. The minimum deposit is also smaller, at £50.
Those who do not want to bank online should steer clear of both of these NS&I accounts, as both can only be operated online.
Union Bank of India (UK) and Paragon Bank offer the top accounts that can be opened by post and pay 4.01pc and 4pc. The latter offers the option of interest payments each month.
Should I choose Premium Bonds instead?
Savers may be wondering if they should ditch their Premium Bonds for these new offerings.
The advertised annual "prize rate" for Premium Bonds is 3.15pc. The winnings are tax-free, whereas the returns on the one-year bonds are taxable, although there is no guarantee bond holders will actually ever win a prize.
Mr Blower said: “If you have Premium Bonds because you're excited by the chance to win prizes then Premium Bonds might be the better option for you. If you’re a higher rate taxpayer it’s probably going to be more attractive to carry on with Premium Bonds too.”
Premium Bonds are best for savers with larger deposits, as you have more chance of winning the more bonds you have. Savers can put up to £50,000 into Premium Bonds. Many people hold much smaller amounts, which are likely to generate better returns in accounts that guarantee interest.
Premium Bonds are also easily accessible and the funds can be withdrawn at any time, unlike one-year bonds, where the funds are locked away.
Mr Blower recommended looking at your tax situation first. Higher-rate taxpayers can earn up to £500 in savings interest before tax, while the tax-free limit for basic-rate taxpayers is £1,000.
One-year fixed-rate Isas offer protection from tax, but the limit on annual deposits is £20,000 and the top rate on the market today is only 3.78pc, according to data firm Moneyfacts.
Savers who are willing to lock their money away for longer will get even better returns by choosing longer-term bonds.
The top rate on savings bonds is 4.5pc, according to Moneyfacts. This is a five-year fix offered by Isbank, via the Raisin savings platform.
Where locking up your cash for a year or more feels like too big of a commitment, savers can opt for an easy-access account. The top rate on a deposit of £50,000 is 3pc, available from Monmouthshire Building Society.
