National Savings and Investments (NS&I) has increased interest rates on its Direct Saver and Income Bonds accounts and launched a new issue of their UK savings bonds.
With the Bank of England’s base rate expected to remain at its current level of 5.25 percent for a little longer, savers can still benefit from high interest rates.
NS&I increased the interest rate for Direct Saver from 3.65 percent AER to four percent AER on May 23, 2024.
Income bonds also rose from 3.5 percent gross/3.65 percent AER to 3.93 percent gross/four percent AER.
New issues of 1-year fixed-rate British savings bonds also went on sale on May 23, 2024.
Guaranteed growth bonds and guaranteed income bonds are among the UK savings bonds announced by the Chancellor in the 2024 Spring Budget.
NS&I
The one-year fixed rate guaranteed growth bonds offer 4.50 per cent gross/AER and the guaranteed income bonds offer savers 4.41 per cent gross/4.50 per cent AER.
The one-year fixed-term bond is next to the three-year bond that went on sale in April this year.
With no announcement of the increased rates, some experts suggested the decision was made to avoid influencing voters ahead of the July general election.
James Blower of the Savings Guru said: “The increases are likely enough to improve retention but not attract new balances.”
Blower said NS&I will aim to remain competitive ahead of the release of its first quarter results in five weeks’ time.
He said: “If they had not done this they would have reported good outflows when their first quarter results were announced in July.”
But Blower said it’s unlikely there will be any more interest rate moves before the election because the government agency doesn’t want the results to be affected.
He added: “Do not now expect any further changes until after the election – it is likely that these increases were decided and agreed before the snap general election was announced.”
Commenting on the quiet increase, Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Savings rates have risen slightly at NS&I. They’ve kept it quiet given the general election, but there’s not much to cheer about anyway. You can do so much better elsewhere.
“The rate for the easy-to-access Direct Saver has increased to four percent, but is still significantly below the rate of the best in the market.
“Accounts offering more than five percent are certainly scarce now, but there is a whole range of offers available at 4.9 percent or more, so you don’t have to settle for less.”
Meanwhile, the new UK savings bond with a maturity of 4.5 percent is “well below” the best on the market at 5.22 percent.
The best rates on the market are available from smaller online banks and cash savings platforms, so they’re a sensible place to start if people are looking for the best deal.
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Coles explained why NS&I has done this: “These small increases, which place them significantly below the best in the market, are most likely not intended to entice more savers.
“If it had been in the cash-generating sector, we would have seen much bigger jumps, to more attractive rates.
“Instead, it is probably a sign that NS&I was keen to stem a flow of savers taking money out of the institution, so there are relatively healthy figures to report in July.
“The institution must always balance the need to raise money with the need to deliver value for money to taxpayers – without distorting the savings market as a whole. It’s safe to say that these numbers more than reflect the goal of being “good enough, but not too good.”