National Savings and Investments (NS&I) yesterday slashed the rate it pays to savers signing up for its fixed-rate bonds – but I still think they’re worth a look.
The one-year Guaranteed Income Bond – which pays out your interest monthly rather than at the end of the year – is down from 4.13 per cent to 4 per cent.
The one-year Guaranteed Growth Bond is now 4.07 per cent – down from 4.2 per cent.
A rate of 4 per cent-plus for a year looks a good bet to me. But remember, if you take out a fixed-rate bond you can’t get your money back until the end of the term, even if rates go up (unlikely).
In the past few weeks other providers have chipped away at the rates they pay, so NS&I bonds had floated near the top of the best-buy tables.
I wouldn’t be surprised if other providers now shaved their rates a little more – and it has already started.
Within hours of the NS&I cut, Virgin Money lowered the rate on its one-year fixed-rate bond to 4.01 per cent from 4.11 per cent for new savers.
The top one-year bond, from Union Bank of India UK, pays 4.33 per cent, followed by Chetwood Bank at 4.26 per cent.
Yesterday the two-year NS&I Guaranteed Growth Bonds went down to 3.98 per cent, the three-year to 4.02 per cent and the five-year to 4.05 per cent.
On the Guaranteed Income Bonds the rates are 3.91 per cent, 3.95 per cent and 3.98 per cent respectively.
But don’t be tempted by a bond that runs for more than a year with NS&I until you’ve checked your tax position. A quirk with NS&I is you do not have access to the interest until the end of the term.
As a result, all the interest you earn over the whole term will count towards your personal savings allowance in the year it comes to the end of its term.
The allowance gives basic-rate taxpayers the first £1,000 of interest they earn in a tax year tax-free, while higher-rate payers get £500.
I’m not surprised NS&I cut its rates. The latest figures from the Bank of England released this week show NS&I brought in £2.45 billion in November, the highest monthly figure for more than two years.
That brings the total raised in its financial year so far to £7.57 billion. It has a target to bring in £13 billion over the whole year. If it continued to bring in the same amount for the next four months it would bust its top target.
The good news is those who have one-year Guaranteed Growth Bonds and Income Bonds maturing now will still earn more than they have over the past 12 months.
This time last year the one-year Growth Bond paid 3.95 per cent and the Income version 3.88 per cent.
