Top savings rates: NS&I desperate for your cash but will best deals last?

NS&I has dramatically ramped up the amount of our cash it wants to attract from savers, but it is still on course to fill that target swiftly.

National Savings & Investments (NS&I) savings products are like those from regular banks.

They're backed by the Government, which means every single penny you put into one of its savings accounts are fully protected.

That sets it apart from other savings providers, which instead see a maximum of £85,000 covered by the Financial Services Compensation Scheme.

Because of that Government backing, NS&I generally needs to play a careful game when it comes to its savings accounts.

In order to offer good value to taxpayers, it has targets for the levels of funds it needs to bring in each year, and that target has a big role to play in the setting of its interest rates.

When the target is low, the interest rates ‒ and therefore the return ‒ from NS&I accounts tend to be far less impressive.

But when the funding target is increased, that’s when you see NS&I start to become more competitive.

Which is why it’s particularly notable that NS&I has just announced an ENORMOUS increase in its funding targets for the 2020-21 financial year.

We need your money!

The Treasury sets that funding target for NS&I, and back in March at the Budget it was set at £6 billion for this year. But times have changed and that target has been cranked up to a vast £35 billion.

That’s a massive change, and according to NS&I reflects the “Government finance requirements arising from Covid-19”.

In other words, the Government wants to raise cash in order to help it pay for the various initiatives it set up to help the country get through the pandemic, and it realises that NS&I is a useful way to do it.

Beat the rush

It’s worth noting that savers have already been turning to NS&I of their own accord. 

Its latest results show that in the first three months of the financial year, savers ploughed £19.9 billion into the Government-backed bank, up from £8.1 billion in the same period last year.

And when you take outflows into account, it delivered net financing of £14.5 billion during the quarter, a huge increase from the £2 billion in the first three months of the last financial year.

This is an important warning that even with the dramatic cranking up of NS&I’s funding targets, it is still likely to hit those targets within a relatively short period of time. 

As a result, those attractive NS&I deals that have won savers’ attention may not be around forever.

How NS&I compares

So what are your options if you’re thinking about a new home for your savings from NS&I? 

Most popular of all are of course Premium Bonds. While they don’t offer an interest return, bondholders are entered into a monthly draw where they could end up with prizes of up to £1 million.

However, for savers who want a guaranteed return and easy access to their cash, NS&I’s Income Bonds pay 1.16% AER. That’s market leading, ahead of the 1% paid by the ICICI Bank SuperSaver Savings Account or the 0.85% paid by Leeds Building Society on its Online Access Account.

If you specifically want your money in an easy access ISA then again NS&I is top of the tree, paying 0.9%, level with Cynergy Bank’s Online ISA.

How long have I got?

Ordinarily the Treasury uses a “value indicator target” when setting NS&I savings rates, to ensure that it is getting good value by raising cash through NS&I.

And generally, given the other routes open to the Government, this might mean that rates on NS&I deals would be cut at the moment.

But that indicator has been suspended once again until the end of September, meaning that for now it is not assessing its accounts in this way. 

In theory that’s good news as it suggests that NS&I’s accounts are unlikely to be revamped too much for the next few months.

But personally I’m a little wary of that expectation. Given the speed at which cash has flowed into NS&I already this year, it may not take too long to hit that £35bn target, even if rates were trimmed from their current market leading level. 

In other words, just because the indicator is out of action, that doesn’t mean rate cuts are entirely out of the question. So if you want those top rates, you may need to move swiftly.