The threat of rising interest rates due to the Iran-fuelled oil price spike is bad news for borrowers but a boon for our savings as rates start to increase again.
Now, Government-backed National Savings & Investments (NS&I) has issued new Guaranteed Growth Bonds and Guaranteed Income Bonds offering higher rates of up to 4.5%.
NS&I has lifted the rate on the one-year bonds from 4.07% to 4.5%, and on the two-year bonds from 3.98% to 4.48%. The three-year bond rate has climbed from 4.02% to 4.45%, and the five-year bond from 4.05% to 4.40%.
These rates are available to new customers as well as to those with existing bonds that are due to mature.
The minimum investment is £500, and the maximum is £1 million per person, in each issue. After the fixed-term expires, savers can either withdraw their cash or reinvest it into a new term.
Sarah Coles, head of personal finance at AJ Bell, said the one-year deal is particularly strong. “Given that savers are far more likely to fix for one year than any other period, NS&I is clearly working harder to attract more cash.”
She said this isn’t a major surprise, given that her rates have been rising elsewhere. “NS&I has a duty to offer decent value for savers, so it couldn’t reasonably sit on its hands offering just a fraction over 4%.”
In contrast to NS&I’s Premium Bonds, returns aren’t tax-free. “If you’re likely to face a tax bill on the interest, then a Cash ISA may be a better home for your savings.”
Income bonds pay monthly interest into your bank account. With Growth bonds, the interest rolls up, and you can only access it at maturity. Coles warned: “Interest is taxable in the year your bond matures, so could tip you into a higher tax bracket.”