NS&I stopped selling guaranteed bonds. Where else can you put your money?

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Last week NS&I stopped selling its one and three-year growth and income bonds to new customers and reduced the rate for existing customers reinvesting their money after October 5th. Can you get a better rate elsewhere?

NS&I Guaranteed Growth and Guaranteed Income Bonds

NS&I’s Guaranteed Growth Bonds and Guaranteed Income Bonds are very popular.  But, at the start of last week, NS&I said it would no longer sell them to new customers. These bonds are essentially fixed rate accounts, in that the interest rate they pay stays the same for the length of the term. Anyone who already has money in a Guaranteed Growth Bond or a Guaranteed Income Bond can leave their cash where it is and reinvest it when the bond matures. But no-one else can take one out.

And there’s a sting for existing savers in these bonds. NS&I said that it would cut the interest rate by 0.25% for people reinvesting their money in Guaranteed Growth Bonds or Guaranteed Income Bonds on or after October 5th, no matter how long the term of the bond. Anyone who reinvests their bond money before then will get the old – higher – rate.

Guaranteed Growth Bonds

These bonds pay a fixed rate of interest for a set term. Interest is paid annually. These are the rates that NS&I will pay from October 5th:

  • One-year Guaranteed Growth Bond: 1.25%
  • Two-year Guaranteed Growth Bond: 1.45%
  • Three-year Guaranteed Growth Bond: 1.70%
  • Five-year Guaranteed Growth Bond: 2%

SAVVY TIP: The rules on Guaranteed Growth Bonds changed in May, and you can no longer cash them in before the term is up. Previously, you could cash in the bond and lose 90 days’ interest.

Taxable or tax-free interest? Interest is paid once a year, on the anniversary of when you took the bond out. Interest is paid without tax being taken off, but it will count towards your £1,000 personal savings allowance. Interest is taxable in the tax year that your bond matures.

Can you get a better rate elsewhere?

According to savings website Savings Champion, you can get a much better rate if you save in a fixed rate savings account – or bond – with one of the newer challenger banks. For example, as I write this, Wyelands Bank pays 1.88% on a one-year fixed rate bond. The top five one-year bonds all pay at least 1.85% interest.

SAVVY TIP: The trade off for getting this much higher interest rate is that your money will be in a bank that you may not be familiar with. Indeed, you may never have heard of it. However, these banks are all covered by the Financial Services Compensation Scheme. This means that your savings are covered up to a limit of £85,000 per person, per bank.

Watch out: In some cases, a bank may share a licence with another bank, but it’s generally some of the larger banks, such as Halifax and Bank of Scotland, that share a banking licence. If different banks in the same group share a banking licence, your savings are only protected up to £85,000 across the group, not per individual bank.

You can check best buy fixed rate savings accounts on Savings Champion.

With fixed rate accounts, the bank cannot change the interest rate once you’ve signed up for it, until the end of the term. Once the term ends, your money may be transferred to a savings account that pays a much lower rate of interest.

Guaranteed Income Bonds

These bonds pay a fixed rate of interest for a set term. Interest is paid monthly. These are the rates that NS&I will pay from October 5th:

  • One-year Guaranteed Income Bond: 1.2%
  • Two-year Guaranteed Growth Bond: 1.4%
  • Three-year Guaranteed Growth Bond: 1.65%
  • Five-year Guaranteed Growth Bond: 1.95%

SAVVY TIP: The rules on Guaranteed Income Bonds changed in May, and you can no longer cash them in before the term is up. Previously, you could cash in your bond and lose 90 days’ interest.

Taxable or tax-free interest? Interest is paid monthly. It’s paid without tax being taken off, but it will count towards your £1,000 personal savings allowance.

Can you get a better rate elsewhere?

As I write this, Savings Champion has Wyelands Bank at the top of its table for savings accounts paying interest monthly. The one-year account pays 1.86%. A three-year fixed rate savings account with Masthaven Bank pays 2.08%, while a five-year fixed rate account pays 2.32%.

Fixed Interest Savings Certificates

These were withdrawn from sale several years ago, but people who’d already got them could reinvest their money in them when their Fixed Interest Savings Certificate matured.

Two year Fixed Interest Savings Certificates will pay 1.3% interest from October 5th, while five year ones will pay 1.9%.

Taxable or tax-free interest? All interest is tax-free and you don’t have to tell HM Revenue and Customs about it.

Can you get a better rate elsewhere?

There’s no direct comparison to NS&I’s Fixed Interest Savings Certificates, but I’ve looked at fixed rate cash ISAs to see what they’re paying. I’ve looked at fixed rate cash ISAs because they pay interest tax-free in the same way that the Fixed Interest Savings Certificates do.  Savings Champion’s website is showing a two year fixed rate cash ISA paying 1.75% (with Ford Money) and a five year fixed rate cash ISA paying 2% (The Family Building Society).  You can compare fixed rate cash ISAs on Savings Champion’s website (or other price comparison sites).

SAVVY TIP: Interest rates on accounts change regularly, so it’s worth checking comparison sites, to see the latest deals. When I say ‘interest rates on accounts change regularly’, I mean that providers change the interest rates on fixed rate accounts that are open to new customers. Once you’ve signed up for a fixed rate account, the interest rate won’t change until the end of the term.

NS&I products that are open to new money

NS&I has several products that you can put money into as a new customer. The best known are Premium Bonds. You can put as little as £25 into Premium Bonds and your money is 100% backed by the government. But you may not win anything at all!

NS&I says that the interest rate used to calculate the prize fund is 1.4%. That means someone with ‘average luck’ could win the equivalent of 1.4% a year in prize money. Taxable or tax-free interest? Any money you win is tax free, so for higher rate taxpayers especially, these can be a good option.

There’s more information on how to buy Premium Bonds and who they’re a good deal for, in this article.

NS&I also has an Income Bond which currently pays 1.15% interest, monthly. As the name implies, it’s aimed at people who want a regular income.

Taxable or tax-free interest? Interest you earn is potentially taxable, in that it counts towards your Personal Savings Allowance.

As well as the Income Bonds, you can take out a Direct ISA with NS&I. However, it’s not paying anything like a best buy rate. As I write this, it is paying 0.9% interest (tax free). That compares with best buy variable rate ISAs paying 1.4%.

Its Direct Saver is an easy access savings account currently paying 0.8% interest. The interest rate is not fixed, so NS&I could lower (or raise) the rate. If this happens, it does have to tell you beforehand. As I write this, you can get over 1.4% interest on easy access savings accounts if you pick one at the top of the best buy tables.

Taxable or tax-free interest? Interest is potentially taxable (it counts towards your Personal Savings Allowance). It’s

If you’re under 18 or you have a child or grandchild who is, NS&I also has a junior ISA. It’s currently paying a healthy 3.25% interest. This makes it almost at the top of the best buy table.

Useful links:

You can find out about all the NS&I products I mentioned on its website.

Savings Champion has signed up to SavvyWoman’s Directory. Why not have a look at financial firms that support what we’re doing?

Related articles:

Tax-free personal savings allowance explained; interest of up to £1,000 a year tax free

How many cash ISAs can you have in one year?

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