NS&I has launched new three-year British Savings Bonds as announced by the Chancellor in the Spring Budget.
There are two versions of the Bond available to investors; the Guaranteed Growth Bond which will pay up to 4.15% interest over three years for investments between £500 and £1 million and the Guaranteed Income Bond which will pay 4.07% interest over three years.
The former will add interest to the Bond on each anniversary of the investment, while the latter allows savers to take out monthly interest.
Like all NS&I savings, money invested will be 100% secure, backed by the Treasury, and invested back into supporting the UK through government financing.
Bim Afolami, economic secretary to the Treasury, said the bonds provided a “new opportunity for UK savers” and said they will “help to grow the savings culture in the UK while providing cost-effective financing for the government.”
However, AJ Bell dubbed the launch as simply “a fancy bit of marketing” and said they are no different to NS&I’s existing products.
Laura Suter, director of personal finance at AJ Bell, said: “Despite being branded as ‘British Savings Bonds’ the money will go into the general government coffers, in the same way as other money raised by NS&I. The government-backed provider has instead re-badged the previous Guaranteed Income and Guaranteed Growth bonds, issuing a three-year version of those accounts.
“A previous one-year version of the bonds that was launched last Autumn was so popular it sold out in just five weeks. However, those bonds came with a 6.2% interest rate on them that is far above this new offer.”
The 4.15% interest rate was also not considered tempting enough to encourage savers to invest. According to AJ Bell, 27 other providers offer three-year bonds with higher interest rates. The top paying three-year bond is 4.63%, meaning that if someone had £5,000 to save they would be sacrificing up to £24 a year of interest by opting for British Savings Bonds.
Suter said: “NS&I said it wanted to price these bonds so they’d stick around, rather than selling like hot cakes, and this middle-market offering may just do that. It’s tricky for NS&I to get the interest rate right on these products: too high and they’ll attract swathes of cash and have to pull the accounts from sale, too low and savers will go elsewhere, meaning NS&I will have to crank up the interest rate later.”
Unlike previous versions of these bonds where NS&I allowed investors to exit bonds early if they sacrificed some interest, this is no longer allowed, meaning that the money is tied up for the full three years with no option to exit early.
Suter also warned that the new launch also “effectively kills off” the NS&I’s Green Savings Bond, which only pays 2.95% interest.
“That means you’d have to be very passionate about green initiatives to opt for the Green Bond over the new British Savings Bond,” she added.
The new Bonds are available to purchase online and will be available for an extended period of time.
