NS&I has released new two and five-year versions of its British Savings Bonds, widening the choice for savers looking for guaranteed fixed rates.
The savings giant is also increasing the interest rate on its existing three-year fixed-term British Savings Bonds.
NS&I, whose products have 100% security as it is backed by the Treasury, said it is 15 years since two and five-year fixed-term deals were on general sale to new investments.
The move follows a cut in the Bank of England base rate last week, from 5.25% to 5%, prompting warnings among some finance experts that savers could expect to see the rates on offer edging down in the coming months.
It also comes after the recent release of NS&I’s annual report and accounts, which showed that it overshot its target for net financing to the Government in 2023/24.
British Savings Bonds are fixed-term issues of NS&I’s Guaranteed Growth Bonds and Guaranteed Income Bonds.
The two and five-year fixed-rate Guaranteed Growth Bonds and Guaranteed Income Bonds were last on general sale to new investments in October 2009.
The two-year option offers savers 4.60% AER (annual equivalent rate).
Savers investing in the five-year option will receive 4.10% AER.
The interest rate on the existing three-year British Savings Bonds has increased for new investors from Tuesday, offering 4.35% AER, up from 4.15% AER previously.
NS&I chief executive, Dax Harkins, said: “It is 15 years since we last had two and five-year fixed-term bonds on general sale to new investments. The two new issues, along with a rate increase for our three-year bonds, provide NS&I savers with increased choice and longer-term security in a changing market.
“Today’s changes will help us to meet our net financing target while continuing to balance the interests of savers, taxpayers and the broader financial services sector.”
The two, three and five-year fixed-rate Growth and Income Bonds are open to savers wishing to fix at a guaranteed rate for the whole term.
Savers need a minimum investment of £500 and can invest a maximum of £1 million in each issue. After the fixed-term period, savers will have the choice to withdraw their cash or reinvest into a new term.
When customers invest in NS&I products, they are lending to the Government. In return, the Government pays interest or prizes for Premium Bonds.
In its annual report and accounts, NS&I said it delivered £11.3 billion of net financing to the Government in 2023/24, but its target range had been £4.5 billion to £10.5 billion. It said that forecasting inflows and outflows had become harder in the competitive savings market and savers did not withdraw their cash as quickly as anticipated.
Analysis by Moneyfactscompare.co.uk of the wider fixed bonds market found that, at the start of August, the average two-year fixed-rate bond on offer was paying 4.33% and the average five-year fixed bond rate on offer was 3.92%, based on savers having £10,000 to put away. The average three-year bond rate was 4.16%.
Rachel Springall, a finance expert at Moneyfactscompare.co.uk said savers should compare rates across the market.
She said: “The interest rates offered on fixed-rate bonds have come down in recent months, so any saver who wants to grab a deal to get a guaranteed return on their hard-earned cash may want to move quickly.
“Fixed bonds that hit their deposit targets can be withdrawn from sale, but those that stay on sale can also slash the rates offered, depending on how the rest of the market is moving.”
Sarah Coles, head of personal finance, Hargreaves Lansdown said: “NS&I is going for a Goldilocks boost to the British Savings Bond.
“It wants to attract more cash to hit a slightly more generous fundraising target, but it doesn’t want to go too far and bust the limit like last year. Middle-of-the-road rates on less popular savings accounts are a sensible solution.
“This enables it to boost rates, offer more choice for customers, and gently increase the amount of money it makes for the Treasury. However, at the same time, its choice of products and the rates on offer will keep a lid on the extra savings it draws in.
“Across the whole of the savings market, the bulk of savings is in easy access products. After that, the one-year market stands out.”
Ms Coles said NS&I “has stuck with the less busy markets offering fixed rates over two, three and five years”.
“At the same time, while these are decent rates, they’re not going to set the savings world alight…
She said: “If you’re in the market for a new fixed deal, you can get more interest elsewhere.
“They’re likely to do the job though. The timing is clever, because the Bank of England rate cut will have reminded people that in the coming months, we can expect easy access savings rates to fall.
“These new accounts may appeal to anyone who still hasn’t got round to fixing at least some of their savings while rates remain higher. And because they allow investments of up to £1 million – 100% protected by the Treasury – it will appeal to some of those with larger balances.”