NS&I cuts Guaranteed Growth & Income Bond rates

Rates on the popular two-, three- and five-year bonds cut by up to 0.35%, as analysts warn Premium Bonds could be next in the firing line.

National Savings & Investments (NS&I) has cut the rates on various Guaranteed Growth and Guaranteed Income Bonds.

The rates on its two-, three- and five-year products have dropped by between 0.19% and 0.35% to new applicants with immediate effect.

It means the bonds now lag behind the best equivalent fixed-rate bonds on the market by as much as 0.51%, meaning savers solely interested in earning a top rate will be better off putting their money elsewhere. 

You can see a full breakdown of the latest NS&I changes in the table below. 

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How do the Guaranteed Growth and Guaranteed Income Bonds compare?

Before we look at how the bonds stack up against the top-paying savings products, it's worth highlighting how the two different types of bonds – Guaranteed Growth and Guaranteed Income – work.

As the name implies, Income Bonds pay out interest monthly, while the Growth bonds pay interest as a lump sum at the point of maturity.

All have a minimum deposit of £500 and a maximum of £1 million.

Now that's out the way, let's start comparing the two-year bonds against the best alternatives.

How the two-year NS&I bond compares

As you can see in the table above, you will now get a rate of 4.25% with NS&I.

The best alternative at the time of publishing is the Ziraat Bank 24 Month Fixed Term account, which pays a rate of 4.72%.

The account is only available through savings platform Raisin, which is currently running a £100 cashback offer for anyone able to deposit at least £10,000. 

The Ziraat account does come with a minimum deposit of £1,000, which is higher than the NS&I bond.

If you only have a small sum to deposit, a better option is the Hampshire Trust Bank 2-Year Online Fixed Saver, which pays a rate of 4.7% and can be opened from just £1.

How the three-year NS&I bond compares

As for the NS&I three-year bonds, they now pay a rate of 4% which can be easily beaten by the Hampshire Trust 3-Year Online Fixed Saver and the UBL UK 36 Month Fixed Term Deposit, both of which pay 4.51%.

The UBL UK bond has a minimum deposit of £2,000 and is only available through Raisin (learn more about its £100 cashback offer here), while the Hampshire Trust option can be applied for directly and with as littls as £1. 

How the five-year NS&I bond compares

NS&I's five-year bond now pays a rate of 3.9%. The best option we could find on the market comes from Birmingham Bank, which offers a rate of 4.36% on its 5-Year Fixed Rate Bond. 

It does, however, require a significant £5,000 minimum deposit. For savers with smaller pots, Hampshire Trust's 5-Year Online Fixed Saver pays a marginally lower rate of 4.32% but can be opened from £1.

Will Premium Bond prize rate be cut next?

Today's decision to cut the Guaranteed Growth and Income Bond rates will no doubt be a blow to some savers who wanted an attractive rate while also bagging the security of saving with the Government-backed NS&I.

But the reality is its impact will be minimal compared to any potential reduction to the Premium Bond prize rate.

It is by far the nation's most popular savings account, with millions of punters hoping to win up to £1 million each month.

While the Premium Bond rate remains unchanged at 4.4% at present, some analysts say today's changes to its fixed-rate products doesn't bode well for its future prospects.

"For anyone holding Premium Bonds this isn’t going to be a great sign," Mark Hicks, head of Active Savings at Hargreaves Lansdown said. 

"There’s every chance NS&I could cut its variable rates sooner rather than later, which could mean the Premium Bond prize rate gets less generous."

Bag £100 cashback AND earn up to 5.02% when you open a savings account with Raisin (minimum £10k deposit). Head this way for all the details. Affiliate link.

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