Savings giant NS&I has launched new versions of its one-year British Savings Bonds with increased interest rates.
One finance expert described the move as bucking “the trend in a falling market”.
British Savings Bonds are fixed-term issues of NS&I’s Guaranteed Growth Bonds and Guaranteed Income Bonds.
They are available to new customers and those with existing bonds which are due to mature.
The new rate for the one-year Growth and Income options, on sale from Thursday, is 4.18% AER (annual equivalent rate).
The previous rate was 4.05% AER.
Andrew Westhead, NS&I retail director, said: “I am pleased that we can offer savers – both new and those with our existing one-year bonds which are about to mature – this new opportunity to save.
“In launching this new issue, NS&I continues to balance the interests of its savers, taxpayers and the broader financial services sector – and to work towards its annual net financing target.”
NS&I is backed by the Treasury, so money held with it has 100% security.
Guaranteed Growth Bonds and Guaranteed Income Bonds are available to customers wanting a guaranteed rate for a fixed-term of one, two, three or five years.
Funds cannot be withdrawn early with fixed-term accounts. Savers need a minimum investment of £500 and can invest a maximum of £1 million per person in each issue.
After the fixed-term period, savers have the choice to withdraw their cash or reinvest into a new term.
Guaranteed Growth Bonds are a lump sum investment that earns a fixed rate of interest over a set period. Interest is added to the bond on each anniversary of the investment.
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Guaranteed Income Bonds are a lump sum investment that pays out monthly income at a fixed rate of interest over a set period.
Earlier in July, NS&I launched some new versions of its two, three and five-year British Savings Bonds with lower rates than previously offered.
It also also lowered the rate on a Junior Isa from July 18, from 4.00% to 3.55%.
Many commentators expect the Bank of England base rate to be cut further this year, which could be a further blow to savers.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “NS&I has bucked the trend in a falling market and boosted the rate on its one-year bonds.
“Elsewhere, savings have been gradually dropping across the board. Fixed terms have generally held up slightly better than easy access accounts, but they’re still trending downwards.
“NS&I itself cut the rate on its bonds fixed for two, three and five years earlier this month – along with cuts to the Premium Bond prize rate in August.
“It’s not worth getting too excited about though. The one-year bond went back on sale in April this year, and the rate at the time was a dismal 4.05%.
“NS&I has to offer a rate somewhere in the middle of the pack, so it doesn’t tend to be market leading, but clearly at this rate it wasn’t pulling in enough cash.
“The rise today still leaves it well behind the market leaders – which offer more than 4.5% – but it will be hoping it has done enough to retain savers with maturing one-year bonds and to attract new cash.”
Laura Suter, director of personal finance at AJ Bell, said: “The rate on offer is a far cry from the original one-year British Savings Bond that launched two years ago which proved to be a sell-out success, being pulled from sale after just five weeks.
“But back then savers were offered a generous 6.2% – a rate that now looks like a relic from another era. With interest rates edging down and other providers trimming their fixed-rate deals, NS&I has clearly tried to find a middle ground that will be attractive enough to draw in some money but not so generous that it’s swamped by demand.
“For some savers, the government-backing of NS&I will be the main draw. With full protection on deposits up to £1 million, it removes the hassle of having to split savings across multiple banks to stay under the FSCS (Financial Services Compensation Scheme) limit of £85,000.
“But for others, that safety net comes at a cost. You can get better returns elsewhere if you’re willing to forgo the government guarantee.”
