NS&I hikes another savings rate in bid to hit financing target

The state-backed bank has doubled the rate on its NS&I Green Savings Bond to 1.3% in its latest bid to attract savers, but the Premium Bond prize rate remains unchanged.

National Savings & Investments (NS&I) has announced yet another savings rate hike as it ramps up efforts to hit its annual funding target.

The latest increase is certainly the most dramatic, with the second iteration of its NS&I Green Savings Bonds offering a rate of 1.3% – double the 0.65% rate offered when the environmentally-friendly product launched last year.

It comes just five days after it hiked rates on both its Direct Saver and Income Bonds from 0.35% to 0.5%, and less than two months since an initial round of hikes were announced in December.

Could the Premium Bond prize rate be increased?

While the recent Base Rate hikes have played a part, the main reason for the raft of savings increases is that NS&I is on track to fall short of its annual funding target for the 2021/22 financial year, which of course ends in April. 

That target is set at £6 billion (in a range of £3 billion to £9 billion) but, by October 2021, it had attracted just £600 million.

In other words, savers deposited just 10% of the target in the first half of the financial year.

We don't know what impact the initial rounds of rate hikes have had on its funding targets, but given its latest rate hike is also the most generous, it would suggest the NS&I is still some way off where it wants to be.

Of course, there is one way it could dramatically increase the amount of funds it attracts: increasing the prize rate on Premium Bonds, which is by far its most popular product.

However, it would be understandable if NS&I was cautious about tinkering with that rate - having just last year witnessed how dramatic the impact tends to be when the Premium Bond prize rate changes.

We can't stress enough that there has been no indication whatsoever that NS&I is even considering a Premium Bond rate hike, but it does appear the state-backed institution is taking increasingly drastic steps to attract funds as the April deadline looms.

We will, of course, update you if the Premium Bond rate does come under review, but for now, let's take a closer look at the NS&I rate hikes already announced and whether any are worth switching your funds to.

Are NS&I Green Bonds worth going for now?

As we mentioned earlier, the increase to its Green Bonds has been dramatic, rising from 0.65% when they launched in October 2021 to 1.3% in this second iteration. 

While the rate hike is absolutely welcome news for savers, and it definitely makes the Bonds much more attractive, it does hammer home just how poor that rate was first time round.

Back in October, the rate was little more than a third of the market-leading three-year fixed rate bond, which paid 1.8% at the time, meaning savers were being asked to take a massive cut in their returns in order to up their green credentials.

Now, the gap between Green Bonds and the best buy is far less drastic – the top three-year deal currently pays 1.85% – but still significant.

So, will the latest rate hike be enough to lure the savers' cash that NS&I so desperately needs?  

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, believes it's possible. 

"Doubling the rate still leaves the bonds a long way short of the best on the market, but is likely to win over a good chunk of savers who want to do the right thing with their money, in an account 100% protected by the Treasury, and with a brand they know and trust, without taking a massive hit to their interest rate,” she said.

Now let's take a look at the rate increases announced last week - for regular readers, please note the rest of this article is unchanged from when we initially covered these hikes on 10 February.

Rates are better, but still nowhere near table-topping

When NS&I announced the first round of rate hikes in December 2021, to 0.35%, we noted at the time that you could earn double the interest by switching to one of the most competitive deals on the market instead.

Now that the rates on the Direct Saver and Income Bonds have increased to 0.5% they are certainly more competitive but nowhere near table-topping – the best equivalent products currently pay up to 0.71%.

So if you want to earn the best possible rate for your cash, the story hasn't changed: take your money elsewhere.

Will the NS&I brand do the heavy-lifting?

Of course, NS&I does come with state-backing, which means 100% of your funds are protected.

That means the small number of savers looking to set aside more than the £85,000 FSCS savings protection limit per banking group may well be willing to sacrifice some of their rate for this additional security rather than having to split their funds into smaller pots. 

Only time will tell whether the vast majority of savers, for whom the £85,000 standard savings limit is more than enough, will be tempted by NS&I's decision to move many of its rates closer to the best buys.

It will certainly be worth keeping a close eye on NS&I rates as we head closer to the end of the financial year in April.

What do you think? Will the new rates entice you to take out an NS&I product? Are you happy to save at NS&I at a lower rate given the additional security? Share your thoughts in the comments section below.