Boost for savers as refreshed British Savings Bonds go on sale with higher rates

New issues of British Savings Bonds have gone on sale on Friday with increased rates of interest, NS&I has announced, bucking trends seen elsewhere in the savings market.

The Treasury-backed savings provider, which offers a range of savings and investments to more than 24 million customers, said the increased interest rates are being made available to both new and maturing customers.

British Savings Bonds are fixed-term issues of NS&I’s Guaranteed Growth Bonds and Guaranteed Income Bonds.

Among the changes, NS&I is offering one-year Guaranteed Growth Bonds and Guaranteed Income Bonds at a new rate of 4.20% AER (annual equivalent rate), up from 4.04% AER previously.

Two-year versions of the bonds are being offered at 4.10% AER, up from 3.85% AER previously.

Savers can get three-year versions at 4.16% AER, increased from 3.88% AER previously.

Five-year deals are available at 4.15% AER, having increased from 3.84% AER.

NS&I is set annual net financing targets and money invested in it contributes towards government spending. It also has a duty to balance the interests of savers, taxpayers and financial services.

The Bank of England base rate was held at 4% on Thursday, but some economists have predicted that, following the closeness of the vote and expectations that inflation has now peaked, it will fall to 3.75% by the end of the year. A fall could spell more meagre returns for savers across the market generally.

Bank of England rate-setters have indicated that more evidence is needed regarding the risks of persistent inflation and weaker economic growth in their deliberations.

Andrew Westhead, NS&I retail director, said: “I’m pleased that we can offer increased interest rates on these fixed-term products, giving savers who want guaranteed returns a choice in how they invest, while continuing to benefit from the security of the 100% government guarantee.

“Today’s changes ensure we continue to balance the interests of savers, taxpayers and the broader financial services sector.”

While many banks and building societies guarantee people’s savings up to £85,000 NS&I secures 100% of people’s savings due to its backing by the Treasury.

Sarah Coles, head of personal finance, Hargreaves Lansdown, said: “NS&I has pulled out all the stops and made fairly chunky increases across the board. This flies in the face of cuts elsewhere in the market, so it’s clearly a major effort to raise funds. You can still do better elsewhere though.

“Across the broader market, rates have held on impressively in the face of so many Bank of England rate cuts over the past 16 months, but they have been trending downwards. Yesterday’s tight vote at the Bank of England, and announcement that inflation is likely to have peaked, means that more rate cuts will be priced in across the market, and fixed rates will come under more pressure.

“The fact NS&I has taken a step in the opposite direction is highly likely to be driven by a desire to get more money in through the door, to meet its funding targets. This time of year tends to see a significant number of fixed-rate deals mature, so the organisation will hope its shiny new bond rates are enough to persuade customers to stay – and to tempt more in.”

Ms Coles added: “It’s worth checking out online banks and savings platforms, where you tend to find better deals.”