National Savings and Investments (NS&I) has increased interest rates on its Direct Saver and Income Bonds accounts, as well as launching a new issue of its British Savings Bonds.
With the Bank of England’s base rate expected to remain at its current level of 5.25 percent for a little longer, savers can still benefit from high interest rates.
On 23 May 2024 NS&I increased the Direct Saver interest rate to four per cent AER from 3.65 per cent AER.
Income Bonds also rose to 3.93 per cent gross/four per cent AER from 3.5 per cent gross/3.65 per cent AER.
New issues of one-year fixed-rate UK savings bonds also went on sale on 23 May 2024.
Guaranteed Growth Bonds and Guaranteed Income Bonds are among the UK savings bonds announced by the Chancellor in the Spring Budget 2024.
NS&I
The 1-year fixed rate guaranteed growth bonds offer 4.50 per cent gross/AER and the guaranteed income bonds offer savers 4.41 per cent gross/4.50 per cent AER.
The one-year fixed bond is next to the three-year bond that was put on sale in April this year.
Without announcing a rise in their rates, some experts suggest the decision was made to avoid influencing voters ahead of the General Election in July.
James Blower, of Savings Guru, said: “The increases are likely enough to improve retention, but not to attract new balances.”
Blower said NS&I will look to stay competitive ahead of its first-quarter results in five weeks.
He said: “If they hadn’t done that, they would have reported good outflows when their first quarter results came out in July.”
But Blower said further rate changes were unlikely before the election because the government agency would not want to be seen to influence the results.
He added: “Don’t expect any further changes now until after the election – it is likely that these increases were decided and agreed before the snap general election was called.”
Commenting on the quiet increase, Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “Savings rates have risen slightly in NS&I. They kept it quiet, considering the general election, but it’s nothing to shout about anyway. You can do much better elsewhere.
“The rate for Easy Access Direct Saver has increased to four per cent, but is still significantly below the pace of the best in the market.
“Accounts offering more than five per cent are extremely weak at the moment, but there are a whole range of offers available at 4.9 per cent or more, so there’s no need to settle for less.”
Meanwhile, the new one-year UK savings bond at 4.5 percent is “well below” the best on the market at 5.22 percent.
The best rates on the market are available from smaller online banks and cash savings platforms, so they are a sensible place to start when people are looking for the best deal.
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NS&I said there were more than 5.8 million prizes up for grabs in the May 2024 Premium Bonds prize draw. GETTY
Explaining why NS&I did this, Coles said: “Those small increases, which put them well below the best in the market, are very likely not designed to attract more savers.
“If it was money-raising business, we would have seen much bigger jumps, to more attractive rates.
“Instead, it’s likely to be a sign that NS&I wanted to stem the flow of depositors pulling money out of the institution, so it has some relatively healthy numbers to report in July.
“The institution must always strike a balance between the need to raise money and the need to offer taxpayers value for money – while not distorting the savings market as a whole. It’s safe to say that those rates largely reflect his goal of being “good enough, but not too good.”