Chancellor Phillip Hammond has confirmed the launch of a new three-year savings product from NS&I.
Mr Hammond called the NS&I Investment Guaranteed Growth Bond “a welcome break for hard-pressed savers”, but is this the best way to stash your cash?
What’s on offer?
The NS&I Investment Guaranteed Growth Bond is a three-year savings account paying a rate of 2.2% AER. You can deposit between £100 and £3,000 per person and interest is paid once a year on the anniversary of the account opening.
The product will be available from April 2017 but NS&I has not yet confirmed a specific launch date.
Anyone aged over 16 can open one and joint accounts are also permitted, although each person can only hold up to £3,000 in their own name. A couple could have a total of up to £6,000 in a combination of individual or joint accounts. For example, they could hold £1,000 each in single accounts and £4,000 in a joint account.
How much can I earn?
If you max out your full £3,000 limit when you open the account you’ll earn £66 in interest over the first year. By the end of the three-year term you’ll have made £202, giving you a final balance of £3,202.
NS&I could not confirm whether your balance will stop earning interest altogether or will just drop to a lower rate on maturity. It says this will be announced in due course.
Are there any restrictions?
The product will only be available through the NS&I website for a 12 month period from launch. While the account is designed to be held for the full three years, you can withdraw money early if you pay a penalty of 90 days' interest.
Can this rate be beaten elsewhere?
When this savings product was first announced in the Autumn Statement it was described as “market-leading” – but that’s not quite the reality.
Atom Bank also offers a three-year saver at 2.2% and you can invest up to £100,000 in this account – significantly more than the NS&I option. There’s also no restriction on the number of accounts you can hold, so you can effectively save as much as you like with Atom.
But remember that savings balances are only protected up to £85,000 per person per financial institution, so if you have more than this amount it’s wise to split your savings between multiple providers. You also need a smartphone to open and access Atom Bank accounts, which means they’re not suitable for all.
What about current accounts?
Many consumers have turned to current accounts in a bid to get a higher return on their cash. These could be a better bet for your savings – especially if you want easy access.
The Nationwide FlexDirect account pays 5% interest on balances up to £2,500 for the first year, but this drops to 1% thereafter.
TSB pays 3% interest on its Classic Plus current account, although this is only on balances up to £1,500.
If you have more cash to save then Santander’s flagship 123 Current Account pays 1.5% interest on balances up to £20,000. This comes with a £5 monthly fee, but also very generous cashback on household and utility bills.
Each of these has requirements such as minimum pay-ins or requiring active direct debits from the account. Read Moneywise’s guide to the best current accounts available today to find the account that’s best for you.
According to our recent poll, more than half of Moneywise readers say they play ‘current account ping pong’. This entails spreading their money across several current accounts to achieve a high level of interest.
Are there other ways to achieve higher income?
Many Moneywise readers are investing in peer to peer lending for higher income. For more on this read “We used peer-to-peer to boost our savings”.
Alternatively, you could consider investing in the stock market, where you can get income of 3% from UK equity income funds. For our recommended funds list visit the Moneywise First 50 Funds.
Both peer-to-peer lending and stock market investments are higher risk than savings and current accounts. You could end up losing some or all of your original investment.