NS&I hikes British Savings Bond rates by up to 0.66%

Following the increases, the bonds are around 0.5% off the best fixed-rate deals on the market.

NS&I has announced a series of rate hikes and relaunches of British Savings Bonds in response to increased competition in the savings market.

The rate on two-year bonds has increased from 3.6% to 4%, while the three-year bond has jumped from 3.5% to 4.1%.

The Government-backed institution has also reintroduced one-year (4.05%) and five-year (4.06%) terms, marking the first time the full range of bonds has been available since 2010.

All the bonds will come in two variants: an Income Bond that pays interest monthly and a Growth Bond that accumulates over the term.

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Are the improved bonds worth getting?

NS&I has to tread a fine line between providing attractive accounts that bring in money the Government can borrow and not dominating the savings market.

As a result, the improved bonds are still some way off the absolute best rates on the market.

For example, the best one-year fixed rate bond on the market, from Cynergy Bank, pays a rate of 4.65%.

That’s 0.6% above the equivalent British Savings Bond.

On a £20,000 savings pot, you’d be missing out on £120 interest by opting for the NS&I bond instead of the market leader.

It's a similar story with the other British Savings Bond terms, with rates generally 0.45% to 0.6% off the very best on the market. 

Of course, saving with NS&I does come with the added security of being Government-backed, whereas banks will only protect the first £85,000 should they go bust (potentially rising to £110,000 later this year).

For the small number of savers looking to set aside huge sums without wanting the hassle of maintaining multiple pots, the NS&I bonds may well appeal.

However, as we pointed out earlier, they would be missing out on a significant chunk of interest by doing so.

Manage all your savings accounts in one place with Raisin, the simple savings service

Market commentary: what the analysts say

Commenting on the rate hikes, Hargreaves Lansdown head of personal finance Sarah Coles said: “For die-hard NS&I devotees, this brings some choice to a marginally improved range of fixed rate accounts, so people can fix their savings for the periods that make the most sense for their circumstances.

“However, that’s just about all you can say in favour of these deals because you can do far better elsewhere.

“It’s bucking the trend by announcing rises in a market that is holding on impressively to decent rates but is still very gradually trending downwards. However, it’s a small bump that does little to close the gap between these rates and the most competitive ones around.

The biggest gap between the NS&I rate and the best deal on the market at the moment is in the one-year market, where NS&I offers 4.05% and the most competitive in the wider market is currently 4.65%.

“Out of all the fixed rate periods, one-year deals are the most popular, so it’s falling the furthest short in the biggest fixed market.

“The gaps for the rest of the range are also significant, given you can make 4.58% over two years, and 4.55% over three years and five years.

This is no surprise. NS&I has to offer middle-of-the-road deals to avoid taxpayers forking out too much for savings or skewing the market.

“The rates have been bumped up slightly in order to meet a marginally higher funding target but remain nothing to write home about.

“These accounts will continue to appeal to savers with huge amounts on deposit because they can put up to £1 million into fixed rate bonds and it’s all 100% guaranteed by the Government.

“It means they don’t have to spread their money between a number of savings accounts in order to benefit from multiple FSCS savings limits, and can keep an eye on it all in one place.

“However, there’s more than one way to crack this particular nut.

“A cash savings platform lets you spread your money between accounts from different banks and keep an eye on it all in one place.

“There’s more choice of the fixed periods too – with some offering anything from one month to five years. The most competitive rates tend to be stronger than NS&I has on offer too, so you can make larger sums work harder.

“If the FSCS limit rises as planned to £110,000 later this year, it could help tip the balance for these savers, and persuade them to look for better rates elsewhere.”

'Bonds are likely to be very popular'

Laura Suter, director of personal finance at AJ Bell, said of the NS&I rate hikes: “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.

“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.