Savings update: NS&I bonds likely to lose pace with inflation

28 November 2016

National Savings & Investments (NS&I) will launch a new bond next spring. The bond will be open to those aged 16 and over, subject to a minimum investment limit of £100 and a maximum investment limit of £3,000.

It is expected to pay a market-leading rate of 2.2% fixed for three years. That's significantly better than the best three-year bonds on offer now at a whisker above 1.6% from Ikano and Tesco banks.

But you could lose out to inflation in the bond if the government predictions on inflation prove correct. The Office for Business Responsibility forecasts 2.3% next year, 2.5% the following year and 2.1% in 2019.

Any money with NS&I is 100% backed by the government. Savers with UK banks and building societies should see the first £85,000 of their savings protected if their bank or building society goes bust from the end of January next year.

The Bank of England plans to raise the cover limit under the Financial Services Compensation Scheme (FSCS) from its current £75,000 to £85,000 - or £170,000 on joint accounts.


Best fixed rates

Smaller banks have edged up some of their fixed rate bond rates for new savers - but rates remain at an historic low.

The best one-year bond currently comes from online Swedish-owned Ikano Bank and Atom Bank at 1.4% closely followed by Charter Savings Bank at 1.38%.

With Atom you have to run your account on your phone through its app while with Ikano your money is covered by the Swedish Deposit Insurance Scheme, but any communication would come from our home-grown Financial Services Compensation Scheme.

Both Charter Savings Bank and Harrods Bank pay 1.4% for 18 months. You can fix at 1.55% with Hampshire Trust and Ikano Bank for two years.

Best easy-access accounts

On easy-access savings accounts, 1% is the top online rate on offer from RCI Bank with your money covered by the European compensation scheme, which gives you €100,000 (around £85,000) worth of cover.

The next best deal is 0.8% from Kent Reliance and Newcastle Building Society. National Savings & Investments Income Bonds pay 1% but you have to take the interest each month - it can't be added to your account.

The top deal on tax-free easy-access cash Isas is 1.1% from Coventry Building Society followed by 1% from National Savings & Investments Direct Isa.

But you can't transfer your existing cash Isas into these accounts. The top deal which accepts transfers is 0.9% from Principality Building Society.

On fixed rate cash Isas, the top one-year rate comes from the Leeds Building Society at 1.01%, while both Aldermore Bank and Leeds pay 1.15% for two years.


This article was originally written for our sister magazine, Money Observer.



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