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The NS&I Investment Bond – will it be any good?

The NS&I Investment Bond – will it be any good?

Category: Savings
Author: Leanne Macardle
Date: 16/03/2018

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

There was a shining light for savers in yesterday's Autumn Statement, and it came in the form of a three-year fixed rate bond from NS&I. But will it be any good? We take a closer look.

The details

Chancellor Philip Hammond said that the final details of the Government-backed bond won't be announced until the Budget in April, but he still gave us a few juicy tidbits to keep us going: currently known as the Investment Bond, it's designed to be market-leading and therefore is expected to pay a rate of 2.20% for three years. It'll be available through NS&I (and therefore comes with the Government guarantee) and will have a maximum investment limit of £3,000.

"We can help those who rely on income from modest savings to get by," said the Chancellor when he announced the measure. "Low interest rates have helped our economy recover, but they've significantly reduced the interest people can earn on their cash savings. So we will launch a new, market-leading savings bond through NS&I, [and] we expect around 2 million people to benefit."

So far, so good. But is it? There seem to be mixed opinions…

The good, the bad and the ugly

Any intervention in the savings market is undoubtedly welcome, with rates having been hit hard by everything from Government lending initiatives (such as the Funding for Lending Scheme) and the Personal Savings Allowance to the recent base rate cut, which has sent rates plummeting in an incredibly short space of time. Many consumers have suffered as a result, particularly those who rely on the interest from their savings as an extra form of income, so the announcement of a new bond is seen as a definite plus.

However, not everyone's quite so convinced, and when you take a closer look, it's easy to see why. The biggest criticism is the investment limit. Yes, the rate may sound good – it's certainly far higher than anything else you'll be able to get at the moment – but on a maximum investment of £3,000, you'll only earn £66 per year in interest. This works out at £5.50 per month, hardly an income boost, and there's no telling yet whether the interest will be paid monthly or not.

Calum Bennie, savings expert at Scottish Friendly, said the bond was "better than nothing", but that the rate "is hardly likely to set the heather alight at a time of increasing inflation". Nici Audhlam-Gardiner, from Saga Investment Services, takes a similar view. He said that while people will appreciate the bond, particularly those over 50, it may not go far enough. "Many people in retirement rely on the interest from their savings to boost their monthly income, and the interest on a £3,000 bond is not going to make up for the money they have lost over recent years," he said.

Positive thinking

But it's not all bad. After all, it's still an "outstanding rate", said Rachel Springall, finance expert at Moneyfacts, that "would beat every single fixed savings bond on the market right now hands down, including those fixed for up to a staggering seven years".

Currently, the best three-year fixed bond on the market (from Ikano Bank) pays 1.63%, while the best five-year fixed rate comes from Milestone Savings, paying 2%, and the market-leading rate of 2.07% is on a seven-year fixed bond from United Bank UK. "With interest rates expected to fall further still, it's likely rates will be even lower when the NS&I bond finally launches in 2017," added Rachel, which means it'll be an even better deal for hard-pressed savers.

Pensioner Bond echoes

Interestingly, this latest announcement is reminiscent of a similar one in the Budget two years ago, when then-Chancellor George Osborne revealed that the NS&I's 65+ Guaranteed Growth Bonds would go on sale in January 2015.

This "caused a huge stir in the market," said Rachel, with millions of older savers thought to have applied for these market-leading Pensioner Bonds – which at the time paid an impressive 2.80% for a one-year term and 4.00% for a four-year fix. Due to the trust consumers have in NS&I, and the fact that they're open to everyone aged 16 and over, this new bond will likely be just as popular, but that means you'll want to act fast to get one when they launch.

"Savers would be wise to sign up to any available alerts from NS&I and start to work out how to have their cash ready to invest," advises Rachel, so it may be worth keeping those earmarked funds in an easy access savings account so you're ready to go on launch day.

Get the best returns possible

There are concerns that some investors could be put off by the low investment limit, but as Rachel explains, there's a similarity between this limit and the way in which high interest current accounts limit the balances on which interest will be paid. "This may be so that NS&I can take more applications without taking in too much cash, hopefully ensuring that there will be better availably and a longer window to get a bond."

But what can you do if you want to get a decent rate before the bond is launched? As ever, it's all about doing your research to find the best rate possible. You may not be able to find a savings account that pays close to 2.2% at the moment, but you could always look to high interest current accounts, which offer rates of up to 5%. And, if you've got a heftier savings pot, you could still get a decent return even with a lower savings rate – check out our savings Best Buys to get started.

What else?

Want better returns than could be achieved with a traditional savings account? You may want to consider the growth potential of a stocks & shares ISA, but just make sure that you fully understand the risks involved by reading our guide.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.