The NS&I officially launched the much-anticipated Investment Guaranteed Growth Bond earlier today (11 April 2017), with the three-year deal offering an interest rate of 2.20%. But is it actually any good, or could you do better elsewhere? We take a closer look.
What is the NS&I bond?
Known as the Investment Guaranteed Growth Bond, the NS&I deal pays a fixed rate of 2.20% for three years. It can be opened with a minimum of £100 and has a maximum investment limit of £3,000, and will be on sale exclusively at NS&I for the next 12 months. Interest will be paid yearly on the anniversary of the account being opened and you must be at least 16 years old to do so, but joint accounts are permitted.
While it's designed to be held for the whole term, it will be possible to access your money early, although you'll lose 90 days' worth of interest in the process. Nonetheless, this level of flexibility could be ideal for those who aren't sure they can make this kind of commitment.
"With its market-leading rate of 2.2%, the Investment Bond will provide a valuable boost for savers who have been affected by low interest rates," said Economic Secretary to the Treasury, Simon Kirby. But will it provide as much of a boost as may be hoped?
Best three-year savings rate?
It can't be denied that the new bond currently offers the best savings interest rate for a three-year deal, with it being far higher than the average of 1.24% (says NS&I) and also well above its closest competitor. However, it falls short of offering the best rate overall – something that it was initially intended to do – with several longer-term accounts able to beat it. Of course, the trade-off is that you'll have to lock your money away for longer, but for some people, that commitment could be worth it.
This is particularly the case for those with more than £3,000 to invest. The low investment limit has been a key criticism of the bond since it was first announced in the Autumn Statement, as even those who invest the full £3,000 will only earn £66 in interest in the first year (after compounding, this will add up to £202.39 in interest over the three-year term, leaving you with a pot of £3,202.39). Compare this with the majority of other accounts that don't have such a low maximum, and many could be tempted to look elsewhere.
Then there's the fact that, as it stands, the NS&I bond doesn't even beat inflation. As announced this morning, the measure of CPI remained unchanged at 2.3% in March, but this means that the Government-backed savings vehicle doesn't even match it – which means the value of savings held within it will actually be eroded over time.
Of course, this is something impacting the vast majority of the savings market at present – only two traditional savings accounts pay a rate that can match or beat inflation – but given that the bond was designed to offer savers real growth, it's disappointing that it won't do that in real terms.
Find a deal to beat it
The Investment Growth Bond could well prove appealing to those who want the security of a Government-backed account, and if they've got less than £3,000 to invest and only want to lock their money away for three years. But what if you're looking for something more? Here are a few alternatives:
- Secure Trust Bank Fixed Rate Bond 3 Year Term (Series 12). This three-year deal comes with a rate of 2.00%, but savers can invest up to £1 million, so even though it's got a lower interest rate than NS&I's bond, it could prove more lucrative to those with larger sums to invest who want the same medium-term commitment.
- Shawbrook Bank 5 Year Fixed Rate Bond Issue 25. This deal matches NS&I's in terms of rate – both pay 2.20% – but it asks you to lock your money away for five years rather than three. Nonetheless, with a minimum investment limit of £5,000, it could prove ideal for those with a larger savings pot (for example, investing the minimum of £5,000 will leave you with £110 in interest after the first year).
- Milestone Savings Fixed Term Deposit. The five-year version of this bond pays an expected profit rate of 2.30%, not only beating NS&I's deal but also keeping up with inflation, which means you may not need to worry about the value of your savings being eroded.
- Ikano Bank Fixed 5 Year Saver. Ikano Bank pays the best savings rate of all, boasting a market-leading 2.35%, which means it's the only account on the market (unless you want a regular savings account, which come with their own restrictions) to offer inflation-beating returns and truly guaranteed growth, for now at least.
If none of these take your fancy, it might be time to look at stocks & shares ISAs. These accounts allow you to invest in the stock market rather than cash, and because of that they offer the potential for far better returns – but they also come with far higher risk. There's no guarantee and you may end up with less than you put in, but with stocks & shares ISA funds seeing an average return of 15.8% last year, they could be worth considering for those with a higher risk appetite.
What next?
Compare savings accounts using our search tool
Find options to beat the new bond by checking out the best savings rates in the market
Consider stocks & shares ISAs
See if high interest current accounts could be an option
