Why is NS&I so popular?

One reason is simply the longevity of NS&I. It’s been around for over 150 years. And over time, NS&I has offered a number of different products, some of which are competitive and others that are not.

Some of which however could not be found anywhere else, like the Index Linked Certificates, which has given NS&I an edge.

But probably the main benefit, is the unique deposit protection that you have on all deposits with them as they are guaranteed by the Government.

For example, NS&I Direct Saver has a maximum deposit limit of £2 million per person – if you deposit that much, it is all protected by HM Treasury, unlike a bank or building society where only a maximum of £85,000 per person, per banking licence is protected by the Financial Services Compensation Scheme (FSCS). 

This is something other providers simply can’t compete with – although NS&I is supposed to bear this in mind and rarely will its products be the best in the market – although it is not unheard of.

You could earn more interest by depositing no more than £85,000 with one or more providers, so that the money is earning the best rates possible from the whole of the market, while still remaining safe. 

However, if you have £2million you might not relish the thought of opening 24 different accounts, so NS&I might be a good option for at least some of the money – even if it means not earning the very best interest.

And in recent years, there have been many changes to the accounts available and for many, NS&I no longer offers the safe haven for their cash that it once did.

So, savers with large sums of money to keep in cash face a tough decision if NS&I is no longer the right option.

A number of NS&I accounts are hard to compare with the market as standard providers don’t have the unique structuring of the products, such as Premium Bonds (still available) and Index Linked Certificates (no longer on sale).

However, with the accounts that are comparable, it’s unusual to see NS&I products top the best buy tables – so there are usually competitive alternatives that can be considered.

Products available

Premium Bonds

Premium Bonds are an old favourite - but more of a lottery than a savings account. However, unlike the lottery you won’t lose your original capital and you might just win a big prize.

Every £1 you invest into Premium Bonds, buys you a unique Bond number with an equal chance of winning a monthly draw prize of between £25 and £1million – although there are only two £1million prizes per month. There is no guarantee that you’ll win a prize – but anything you do win is tax free.

The current odds of winning anything are 24,500 to 1, with the annual prize fund interest rate (not guaranteed of course) currently at 1.40%.

The added bonus is the prizes are tax-free. Savers can invest from £25 up to a maximum £50,000.

Not all NS&I products are tax free, so check the terms and conditions carefully to make sure you know what tax you might need to pay.

Income bonds

A monthly income paying variable rate easy access account. Currently paying 1.15% gross/1.16% AER on a minimum of £500 up to a maximum of £1m.

Direct ISA

An easy access Cash ISA available online or by phone. The account pays 0.90% tax-free/AER available on a minimum of £1.

Direct Saver

An easy access, taxable savings account available online or by phone. The account pays 1% gross/AER on balances of £1 to £2m.

Investment account

An easy access, taxable savings account available by post.

The account pays 0.80% gross/AER and can be held on behalf of a child or grandchild.

Again the maximum in this account is £1m and like all of the above, it’s all guaranteed by HRMC.

Junior ISA

A tax free children’s savings account available for those under the age of 18 with current limits set at £4,260 for this tax year. The current rate is 3.25% tax-free/AER.

Products you may already have 

NS&I also has some products that are no longer on sale to new customers, but if you already have them, you can roll them over on maturity.

NS&I index linked certificates

If you are lucky enough to have some of these, you should think carefully before encashing them.

These accounts are some of the only savings accounts that can beat inflation, as they index link to the Consumer Prices Index (CPI). 

Index Linked Certificates opened before 1st May 2019 are even more valuable as they still use the higher Retail Prices Index (RPI).

The recent change from RPI to CPI has not gone down well with customers and the media alike, even though CPI is the more widely used inflation measure and is applied to index linked products such as state benefits.

But the returns are tax free – so even with this change, they are especially valuable to taxpayers who are earning more interest than the Personal Savings Allowance (PSA) that applies to them.

Even though you can’t currently add any new money, you can renew up to the total value of your maturing Certificate, including all the interest and index-linking earned. Or you can cash in some of your investment and renew the balance.

You won’t be able to add any extra money to your Certificate.

The options on maturity will normally include:

• renewing your Certificate for another term of the same length
• renewing it for a term of a different length (only 3-year and 5-year terms available
• cashing it in

Guaranteed Income Bonds

These are taxable fixed rate bonds, which were withdrawn from general sale in August 2019, however those with existing bonds can roll over into a choice of the prevailing issue at the time of maturity. 

Interest is paid monthly to provide a guaranteed regular income.

Guaranteed Growth Bonds

These are taxable fixed rate bonds, but unlike their income sibling, do not pay any interest until maturity, although on bonds of longer than 12 months, the interest is added to the bond each year and compounded until maturity.

As with the Guaranteed Income Bonds, although no new savers can invest, those who were able to invest before they were closed, do have the choice of rolling over or taking the proceeds on maturity, remembering that once withdrawn they will not be able to put the money back until NS&I re-introduces these bonds once again.

And it’s likely that even if these bonds are reintroduced, the terms & conditions and maximums could be different.

For those considering rolling over maturing proceeds, far better rates can be found elsewhere – however for those with large holdings if they move elsewhere, they may need to split the money if they want to ensure it continues to be fully protected by the UK FSCS.

As well as being withdrawn from general sale, the terms and conditions of the bonds were changed in May 2019 and early access is no longer allowed.

In the previous issues, access to the money was allowed before maturity – although a penalty equivalent to 90 days’ interest would have applied.

Customers who invest in new Issues of Guaranteed Growth Bonds and Guaranteed Income Bonds will have a 30-day cooling off period at the start of the investment should they change their mind but will no longer have the option to withdraw their funds early.

You can renew up to the total value of your maturing bond, including all interest earned. Or you can cash in some of your investment and renew the balance – but you won’t be able to add any extra money.

The options on maturity will normally include;

• renewing your bond for another term of the same length
• renewing it for a term of a different length
• cashing it in

The current rates available for customers who wish to roll over an existing bond are as follows – however, rates will be 0.25% higher for bonds maturing on or before 5th October 2019, that are rolled over for the same term.

Guaranteed Income Bonds

Guaranteed Growth Bonds

These issues and rates may change, so check any details sent by NS&I.
 

Fixed interest savings certificates

As the name suggests, Fixed Interest Savings Certificates pay a fixed rate of interest for a fixed term. You can have access before the end of the term but there will be a penalty.

The real benefit of these certificates is that all interest earned is free from UK income or Capital Gains Tax.

You can renew up to the total value of your maturing Certificate, including all interest earned. Or you can cash in some of your investment and renew the balance – but you won’t be able to add any extra money to your Certificate.

The options on maturity will normally include;

• renewing your Certificate for another term of the same length
• renewing it for a term of a different length
• cashing it in

The current rates available for customers who wish to roll over an existing Certificate are as follows

These issues and rates may change, so check any details sent by NS&I and once again, for those with bonds maturing and rolled over for the same term, on or before 5th October 2019, they will receive 0.25% more than the current rates.
 

Products no longer available for any savers

65+ Guaranteed growth bonds

Perhaps the most interesting development from NS&I in recent years was the launch of the 65+ Guaranteed Growth Bonds, often referred to as ‘Pensioner Bonds’ in the media.

Available for either one or three years, the rates on offer were far in excess of the competition at the time.

Each saver over 65 could put up to £10,000 into each term and the accounts proved extremely popular.

Unfortunately, the options on offer from NS&I on maturity were disappointing in comparison to the original rates and so many other providers will have seen an influx of funds, as these accounts matured.

Investment guaranteed growth bond

In a similar vein, 2017 saw the release of a new 3 year Investment Guaranteed Growth Bond from NS&I.

Like the so-called Pensioner Bonds before it, this new bond was set to be a market-leading interest rate and designed to help savers who continue to struggle with low interest rates.

Unlike Pensioner Bonds, this bond could be opened by anyone over the age of 16, so had far more of a reach and was available to open for 12 months from launch.

Unfortunately, whilst the rate was ahead of the competition at launch, the reception was muted overall, thanks largely to the relatively low maximum balance of £3,000.

Children’s bonds

These were taken off general sale on 26th April 2018 and once they mature, they can no longer be renewed.  

The Children’s Bonds were lump sum bonds offering a fixed rate for five years on deposits of up to £3,000 per child, per issue.

So those who currently hold these bonds will have to look at what options they are offered at maturity – but it’s unlikely they will be able to open a new Children’s Bond, unless this product is reintroduced.

Other NS&I products

The first account to be launched by the Post Office Savings Bank in 1861 was called the Ordinary Savings Account – this has been completely closed and all funds that remained were transferred into the NS&I Residual Account which is currently paying just 0.35%.

Other products that have been and gone included the Treasurer’s Account, SAYE, Yearly Plan and Deposit Bonds. As with the Ordinary Account all proceeds were transferred to the Residual Account when the accounts were permanently closed.

It definitely makes sense to check if you have some old NS&I accounts that have been neglected or forgotten, as if they have matured and/or moved, you could have cash sitting in the Residual Account earning a pittance.

In Premium Bonds alone there are over 1.5 million prizes worth more than £61 million that currently remain unclaimed.

Premium Bonds may go unclaimed for reasons including if NS&I don’t hold your current address details or if you had Bonds bought as a child but have since forgotten about them.

NS&I has a Tracing Service for those who think they may have savings, but have lost the details.

Even if you haven’t forgotten your accounts, if you haven’t reviewed to see  if you could do better elsewhere, take a look at what is available from the open market.

NS&I is loved by many, but it doesnt offer as much opportunity as it once did. you can explore more about this in our article NS&I alternatives. 

If you want to get more information about how to manage your cash savings, get in touch and speak to a financial adviser who can help you. 

rates correct at 17/09/2019