In a notable move for cash savers, NS&I has boosted the interest rates on its British Savings Bonds and reintroduced both one-year and five-year fixed-rate options. For the first time in over 15 years, clients can choose from four different fixed-rate income or growth bonds backed by the government.
While the rates still trail behind the market’s top offerings, these products cater to a specific audience—those prioritising security and simplicity over chasing the highest returns. For advisers, this development presents both opportunities and challenges: helping clients weigh government-backed protection against potentially higher returns elsewhere, especially amid a shifting savings landscape of rising rates and easing mortgage costs.
In the following analysis, AJ Bell’s director of personal finances, Laura Suter, outlines key considerations and potential client talking points, including who might benefit most from NS&I’s relaunched products and what to keep in mind when assessing them as part of a broader financial strategy.
Suter says: “For the first time in more than 15 years savers can buy four different fixed-rate income or growth bonds from NS&I, with rates having been increased on all the bonds. The British Savings Bonds, which were previously called the Guaranteed Growth and Guaranteed Income bonds before Jeremy Hunt rebranded them, give savers the option of taking the income from the accounts or allowing it to roll up.
“The rates are lower than the market leaders, meaning savers are sacrificing returns for the safety and brand recognition of NS&I. For example, the current market leading one-year fixed rate accounts pay around 4.65%, while the NS&I version pays 4.05%. For someone saving £25,000 that equates to £150 of lost interest over the year – not an insignificant sum.
“However, the fact that you can invest up to £1 million in the accounts and they’re government-backed will appeal to those with large cash savings. These savers otherwise would have to split the money across different providers to meet the £85,000 Financial Services Compensation Scheme (FSCS) limit.
“Despite the lower interest rates, the bonds are likely to be hugely popular, particularly the one-year offering. When the one-year version of these bonds went on sale in late 2023 they sold out in five weeks, with more than a quarter of a million savers putting more than £10 billion in the accounts. At the time the accounts paid 6.2%, so the lower rate might mean we don’t see such a clamour for the accounts.
“Savings rates rising while mortgage rates are falling is the kind of dream situation that we don’t see very often. While mortgage rates have been cut thanks to expectations of bigger interest rate cuts from the Bank of England, following on from the Trump tariff market turmoil, savings rates are still rising.
“This reflects the time of year and competition being rife in the savings space. Tax year end and the start of the new tax year means more people are getting their savings in order and hunting around for new accounts, which usually sparks a rise in savings rates as banks look to snap up savers’ money. Savers shouldn’t get too giddy – we’re not talking about huge leaps in rates here. Moneyfacts data showed that between March and April the average rates on one and two year bonds rose by 0.03 percentage points, while the average rate on four-year bonds jumped by 0.13 percentage points.”
Laura identifies five things to consider before buying British Savings Bonds
- You can’t withdraw your money early. Under some previous versions of these bonds NS&I allowed people to exit the bonds early if they sacrificed some interest. But that’s no longer allowed, meaning that the money is tied up for the full term with no option to exit early. It means you should only put money in the accounts that you categorically know you won’t need access to – this is particularly important for the longer-term accounts.
- You can save up to £1 million. Each person can save a minimum of £500 and up to £1 million in the British Savings Bonds. Because NS&I is government-backed it means those with large cash savings can keep their money in a safe account without having to worry about the FSCS compensation limit. However, if you have significant cash savings it’s worth considering whether you need it all in cash or whether you could invest it.
- Pick whether you want the interest now or later. If you pick the “Income Bond” version you’ll get the interest paid out each month into your bank account, meaning you can spend it. This is a good option if you need the income each month to live off – so ideal for retired people, for example. However, if you don’t need the income you might be inclined to pick the “Growth” option, which means the interest is rolled up and added to the bond each year and then you can only access it at the end of the fixed term. Bear in mind your tax situation though.
- Remember the tax bill. While NS&I’s Premium Bonds are tax-free, these bonds aren’t. It means that you could pay tax on the interest you earn. The Personal Savings Allowance gives most people a tax-free limit for the interest they can earn on their savings before they’re taxed. It currently stands at £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers. Additional rate taxpayers get no tax-free allowance. It means that once you breach the limit you’ll pay tax on the interest at your income tax rate. Because the growth version of the bonds rolls up the interest until the bond matures, it means all that interest will fall into one tax year – potentially single-handedly breaching your Personal Savings Allowance. If you’re likely to face a tax bill for the interest you might want to weigh up whether an ISA would be better for your cash savings.
- NS&I is government-backed, but do you need that? A big appeal of NS&I is that they are backed by the government, so they are seen as the safest place to keep your money. However, other banks and building societies are protected by the Financial Services Compensation Scheme, which covers up to £85,000 of money per person, per financial institution. This means that your money is theoretically as safe in any other bank with FSCS protection as it is with NS&I. But regardless some people will feel much safer with their savings being with the government. Plus, anyone with a large amount of savings may prefer to put their money with NS&I rather than split it into £85,000 pots with different providers.
