National Savings and Investments (NS&I) has increased interest rates on its Direct Saver accounts and Income Bonds, as well as launching a new issue of its British Savings Bonds.
With the Bank of England’s main interest rate expected to remain at its current level of 5.25 percent for a little longer, savers can still benefit from high interest rates.
NS&I increased the Direct Saver rate to four per cent AER from 3.65 per cent AER on 23 May 2024.
Income bonds also increased to 3.93 per cent gross/four per cent AER from 3.5 per cent gross/3.65 per cent AER.
New issues of 1-year fixed rate UK savings bonds also went on sale on 23 May 2024.
Guaranteed Growth Bonds and Guaranteed Income Bonds are among the UK savings bonds announced by the Chancellor in the Spring Budget 2024.
NS&I hiked rates again
NS&I
The 1-year fixed rate guaranteed growth bond offers 4.50 per cent gross/AER and the guaranteed income bond offers savers 4.41 per cent gross/4.50 per cent AER.
The one-year fixed bond sits next to the three-year bond that went on sale in April this year.
As the increased percentages were not announced, some experts suggested the decision was made to avoid influencing voters ahead of July’s general election.
James Blower of Savings Guru said: “The increases are likely enough to improve retention, but not attract new balances.”
Blower said NS&I would aim to remain competitive ahead of its first-quarter results in five weeks.
He said: “If they hadn’t done that, they would have reported good outflows when their Q1 results were announced in July.”
But Blower said there was unlikely to be any further interest rate movement before the election because the government agency would not want to be seen to influence the outcome.
He added: “Don’t expect any further changes now until after the election – these increases are likely to be decided and agreed before the snap general election is called.”
Commenting on the quiet increase, Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Savings rates have risen slightly across NS&I. They kept it quiet given the general election, but it’s not much to shout about anyway. You can do much better elsewhere.
“Direct Saver’s rate for easy access has risen to four per cent, but is still well behind the pace of the best in the market.
“Accounts offering more than five per cent are definitely thin on the ground now, but there’s a whole range of deals available at 4.9 per cent or more, so there’s no need to settle for less.”
Meanwhile, the new one-year UK Savings Bond at 4.5 per cent is “well below” the market best of 5.22 per cent.
The best rates on the market come from smaller online banks and cash savings platforms, so they’re a sensible place to start when people are looking for the best deal.
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NS&I said there were more than 5.8 million prizes up for grabs in the May 2024 Premium Bonds prize draw. GETTY
Explaining why NS&I did this, Coles said: “These small increases, which put them well below the best in the market, are very unlikely to be designed to tempt more savers.
“If it was in the business of raising money, we would see much bigger jumps, to more attractive rates.
“Instead, it is likely to be a sign that NS&I wanted to stem the flow of savers withdrawing money from the institution, so it has some relatively healthy numbers to report in July.”
“The institution must always balance the need to raise money against the need to offer value for money for taxpayers – while not distorting the savings market as a whole. It’s safe to say that those percentages largely reflect his goal of being “good enough, but not too good.”