- NS&I has today hiked the rate on its one-year bond from 4.5% to 4.69%, the two-year bond is up from 4.48% to 4.67%, the three-year bond from 4.45% to 4.65% and the five-year bond from 4.4% to 4.55%
- A new issue of the three-year fixed term green bond has gone on sale at 4.45% – the previous one offered just 3.82%
- The most recent rise in fixed rate bonds was in April this year
Sarah Coles, head of personal finance at AJ Bell, comments:
“The savings market is impressively competitive right now, and NS&I has entered the fray. Since the last time NS&I hiked its fixed rate deals, future rate expectations have fallen, which should be putting downward pressure on rates. However, banks are pulling out all the stops to compete, keeping fixed rate deals higher and forcing NS&I to raise rates again to attract the cash it needs.
“It’s bucking the trend of the rest of the fixed rate market, which is now rewarding savers very slightly more for tying up their cash for longer. NS&I is still offering the best rate on its one-year fix. This is likely to be an indication of what’s going on behind the scenes. The one-year market takes more money than any of the other fixed rate periods, so there’s every chance this is an effort to boost the coffers for the organisation without paying more than they have to.
“The need to attract more money is key. NS&I has a fairly punchy fundraising target of £15 billion and saw relatively lacklustre inflows between January and March, followed by outflows in April, so may well be hoping the latest moves draw more cash to the institution.
Green Bonds
“The hike in the green bonds is a separate decision, because it doesn’t count towards the net financing target. The rise is striking though, from a fairly miserable 3.82% to a reasonably competitive 4.45%. The gap between these bonds and the ordinary three-year bonds is much narrower now, so the price you pay for knowing your money is funding green projects has fallen. This is a significant departure, and seems to suggest that the previous policy of hoping green-conscious savers would be happier to overlook a much lower rate for the bonds just wasn’t working in attracting the cash they wanted.
“It doesn’t mean savers should be beating a path to their door just yet though. They can still make more interest elsewhere, with 4.85% on offer over one-year, and more for those who are prepared to fix for longer. Anyone hunting for the best possible deal won’t be tempted by the changes. However, for those attached to the brand or drawn by the appeal of the 100% Treasury guarantee, the rate boost may be enough to tip the balance.
Premium Bonds
“This change will inevitably raise the question of whether it means the Premium Bond prize rate is set for a boost too. The good news is that it’s already set to rise in July – which was announced last month. The bad news is that NS&I might decide this is enough to retain its customers at a time when the next interest rate movement is expected to be downwards. It will still need to hit its funding targets, but is likely to have an eye on how successful this round of hikes is before it considers another rise for its flagship savings product.”
