British Savings Bonds go on sale, but experts say 4.15% rate is 'disappointing'

03 April 2024 , 11:36

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British Savings Bonds have gone on sale (Image: PA Archive/PA Images)

British Savings Bonds, which were announced in the spring Budget, are now on sale with a rate of 4.15%.

However, finance experts have noted that the 4.15% rate for the three-year products is lower than the top deals in the wider savings market. They say this means these products "risk disappearing without a trace". British Savings Bonds are new three-year fixed-rate issues of Treasury-backed savings giant NS&I's Guaranteed Growth Bonds and Guaranteed Income Bonds.

The Guaranteed Growth Bond option is available at 4.15% gross/AER (annual equivalent rate) and the Guaranteed Income Bond option is at a rate of 4.07% gross/4.15% AER. These bonds offer savers a guaranteed interest rate over three years for investments between £500 and £1million.

Money can't be taken out until the end of the term. NS&I said the new British Savings Bonds will be available for an extended period of time and can be bought online at nsandi.com. Like all NS&I savings, the money invested is 100% secure, backed by the Treasury, and is used to support the UK through Government financing.

Savers looking for a three-year deal can find options with rates above 4.60% AER in the wider market, according to Moneyfactscompare.co.uk. Higher rates are available on shorter-term bonds; for example, savers can get 5.25% AER for a one-year deal or 5.10% for a two-year deal.

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Rachel Springall, a finance expert at Moneyfactscompare.co.uk. said the NS&I bonds "may well appeal to savers who are happy to forgo higher interest rates available elsewhere on equivalent term bonds to invest their cash, as NS&I products provide 100% capital security".

She added: "Popular products don't tend to sit on the shelf for very long, but NS&I intend to offer these British Savings Bonds for an extended period of time. As it stands, savers can get an account that pays more than 5% on either an easy access account or fixed-rate bond.

"As has been evident, fixed rates on savings accounts are coming down, so the deals that sit towards the top of the market will likely be in high demand."

Laura Suter, director of personal finance at AJ Bell, said: "Despite being branded as 'British Savings Bonds' the money will go into the general Government coffers, in the same way as other money raised by NS&I. This new launch effectively kills off the Green Savings Bond which is the other three-year fixed-rate bond from NS&I."

Sarah Coles, head of personal finance at Hargreaves Lansdown, said the rates on the new bonds are "disappointing". She said: "NS&I British Savings Bonds may well be doomed to mid-table mediocrity. At this rate, these bonds risk disappearing without a trace."

Ms Coles added: These NS&I rates just aren't special enough to persuade lots of new savers to tie their money up for longer. "Easy access and short-term fixed accounts offer higher rates right now, because longer fixes factor in expectations that interest rates will fall during the term. However, at the moment, there are decent rates available on longer fixes that are worth considering."

"There are still three-year savings accounts on the market paying 4.65% or more, and you can get cash Isas over three years paying up to 4.4%, which have the added attraction of protecting your savings from tax. Right now, with banks competing so hard for Isa cash, you could even get cashback into the bargain, so there are plenty of more attractive homes for your money."

"There will be some interest in these bonds. The fact you can hold up to £1 million will appeal to those with huge savings balances, because this is 100% guaranteed by the Treasury, so savers can hold it all in one place without having to worry about the fact that the (Financial Services Compensation Scheme) protections are limited to the first £85,000 with any institution."

Bim Afolami, Economic Secretary to the Treasury, said: "This is a new opportunity for UK savers to benefit from the three-year fixed-rate British Savings Bonds knowing that their money is fully protected by HM Treasury. The bonds will help to grow the savings culture in the UK while providing cost-effective financing for the Government."

NS&I's boss Dax Harkins said: "British Savings Bonds are there to help people save for the longer term and support their savings goals, safe in the knowledge that their investments are 100% protected. As with all savings with NS&I, money is invested back into supporting the UK through Government financing."