Savings giant NS&I has rolled out updated versions of its British Savings Bonds, now featuring lower interest rates. The Treasury-supported establishment has announced that the freshly introduced issues of its two-, three-, and five-year British Savings Bonds are a reflection of “the changing savings market”.
After the Bank of England base rate saw a decrease of 0.25 percentage points in August, settling at five percent, NS&I, which is also behind Premium Bonds, stated that revisions to its British Savings Bonds align the interest rates more fittingly with the broader market, simultaneously balancing the interests of savers, taxpayers and overall financial services.
British Savings Bonds consist of two types: NS&I’s Guaranteed Growth Bonds and Guaranteed Income Bonds.
Guaranteed Growth Bonds are lump sum investments that earn a fixed rate of interest over a set period. Interest is added to the bond on each anniversary of the investment.
Guaranteed Income Bonds are also lump sum investments, but they pay out a monthly income at a fixed rate of interest over a set period.
Starting Wednesday, investors will find the new issues of the two-year Guaranteed Growth Bonds and Guaranteed Income Bonds offering an AER (annual equivalent rate) of 4.25 percent, a drop from the previous 4.6 percent.
The new three-year variants come with a four percent AER, a take-down from 4.35 percent, whereas the five-year bonds are set to yield a 3.9 percent AER, marking a dip from the earlier available rate of 4.1 percent.
Dax Harkins, NS&I chief executive, highlighted the latest financial strategy, saying: “Our two, three and five-year fixed-term bonds continue to offer savers increased choice, a fair return and longer-term security in a changing market.”
He added that these adjustments ensure that interest rates are adequately set and help maintain a balance between the interests of savers, taxpayers, and the wider financial services sector.
Commenting on the cuts, Mark Hicks from Hargreaves Lansdown said: “It was always a matter of when these cuts were going to come, rather than if.”
He further noted: “However, the fact NS&I is cutting rates today demonstrates that it’s not desperately keen to fill its boots, so it isn’t going to be comfortable with paying over the odds. This doesn’t bode well for Premium Bond savers.
“These fixed-rate cuts mirror the falls that we’ve seen in the rest of the saving market.”
He added: “While rates have headed downhill, the NS&I has shifted gear in order to stay in the middle of the road. Last year, NS&I distorted the market with a market-leading one-year rate, but these moves imply that NS&I isn’t in any rush to do the same again. It’s not desperate to raise significant funds by paying more than it needs to.”
