NS&I makes another rate hike - but how does it stack up?

NS&I has increased the rate on its Direct ISA for the 2nd time this year – but, spoiler alert, that doesn’t make it competitive! The rate on the Direct ISA has increased to 2.40% AER, from 2.15%. This latest rate rise does not mean that the rate is competitive. At the moment you could earn as much as 3.75% with Virgin Money – more than 1% more than the NS&I offering.

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Other accounts in the NS&I stable have also seen increases this year which made them far more attractive.

Back in February, the 1-Year Guaranteed Growth and Income Bonds were reinstated, paying what was then a very competitive 4% AER and 3.97% AER respectively, while a new issue of the 3-year fixed rate Green Savings Bond was launched, paying 4.20%.

And on Valentine’s Day a raft of rate hikes were announced. The Premium Bond prize fund rate was to increase to 3.30% which would apply to the March draw and the interest rate on both the easy access accounts, Direct Saver and Income Bonds, was increased to its current level of 2.85% AER.

As a result, £3.5 billion poured into NS&I accounts in March alone, the largest amount since September 2020. But things have moved on since then and with the state-owned bank attracting so much money recently, it’s unlikely that there will be many more rate hikes to come, leaving NS&I customers lagging behind the top rates available elsewhere.

So how do NS&I accounts compare with the rest of the market?

NS&I Direct Saver and Income Bonds - 2.85%

The easy access savings market has moved on since the Direct Saver and Income Bonds accounts increased to 2.85%. At the time the best rate on offer was paying 3.11% AER.  But while the NS&I accounts are still paying the same rate, there are far better accounts to be found elsewhere.

The top easy access account currently available is an online account from the Principality Building Society paying 3.88% AER.

The Principality account does have its restrictions though – you can only make two withdrawals per calendar month including closure – so it’s not appropriate for someone who needs regular access to their cash. But the next best is still much better than NS&I – Secure Trust Bank is paying 3.85% AER.

 

NS&I Guaranteed Growth Bond – 4% AER

A lot has happened since NS&I re-introduced the 1-Year Guaranteed Growth Bond paying 4%, which at the time was pretty competitive. But as things stand today, far better rates can be found elsewhere.  The top 1-year Fixed Rate Bond is with the National Bank of Egypt via the Raisin UK platform and is paying 5.25%. On a balance of £10,000 that a difference of earning £525 or £400!

NS&I 3-Year Green Savings Bond

When launched this was a very competitive rate, as the best 3-year bond available at the time was paying 4.45%. But things have moved on and at the time of writing, the top 3-year bond is 5.30% with Tandem.

NS&I Direct ISA

The new rate of 2.40% means that anyone depositing money with NS&I will earn just £480 a year compared to £750 if you were to put your £20,000 with Virgin Money’s Easy Access Cash ISA Exclusive Issue 2 paying 3.75% AER. As the name suggests, you do need to open a current account with Virgin too – but it doesn’t need to be your main account.

The bottom line is that better rates can be found elsewhere, so you are likely to be better off if you shop around for the best rates.  You can find all the latest Best Buys for your savings here at our sister company, Savings Champion.

For anyone with £100,000 or more in savings, investments or pensions , we’re currently offering a free initial planning review to include a ‘cash flow forecast’ worth £500.  Find out more here.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The accounts and rates mentioned in this article are accurate and correct as of 30/5/2023.

The Financial Conduct Authority (FCA) does not regulate cash advice.