Is the new NS&I 1-Year Bond worth locking in to?

NS&I has launched a new issue of its popular 1-year Guaranteed Growth Bonds and Guaranteed Income Bonds, and although the new rate on offer is higher than the previous, it could disappoint many who might have hoped for more. The new issue’s rate of 4.18% AER (monthly income option is paying 4.11% gross/4.18% AER), whilst up from 4.05% AER on the previous issue, looks underwhelming compared to what’s currently available elsewhere, so savers may be tempted to walk!

Two years ago, NS&I made an uncharacteristic move and launched a market-leading 1-year bond paying 6.20% AER. Understandably it was extremely popular. Not only as that was the best rate available at the time, but also because it was with NS&I – a trusted brand and a really useful account for those wanting to deposit large sums of money. The maximum deposit into the bond was £1 million – and all cash deposited is protected by HM Treasury, one of the key reasons that NS&I continues to be so popular.

This time last year, the rate NS&I was offering to its maturity customers was paying 5.15% AER. While not the highest in the market (Union Bank of India offered 5.40%, and several others hovered around 5.25%), it was still a competitive deal – especially considering the government-backed security it came with. Rates were on the turn at that point, starting to head south, and had NS&I allowed new customers to apply, the bond would have ranked among the top five available. As a result, NS&I likely retained a lot of this maturing cash, which was important for the state-owned bank, in order to meet its net financing target - the amount of money it needs to raise each year.  

NS&I met its net financing target for the 2024/25 tax year, pulling in a net total of £9.75 billion – comfortably within its range of £9 billion (+/- £4bn). However, looking ahead to the 2025/26 tax year, NS&I has been set a more ambitious target: £12 billion, again with a +/- £4bn margin.

With such a large tranche of funds – originally attracted by the headline 6.20% bond – now maturing, the challenge is to keep as much of that money in-house as possible, which may be a little more of a struggle, as this rate is not as competitive as it has been in the past.

The top 1-year bond rate right now, with GB Bank and Conister Bank, and is paying 4.53% AER. Many other providers are offering deals at or just below 4.50%, meaning savers with £50,000 to invest could earn £2,265 (before the deduction of tax) in interest by choosing a top-paying account, compared with £2,090 with NS&I – a notable difference of £175 over the year.

By offering 4.18%, NS&I is clearly hoping to retain enough customers, without overpaying in a falling-rate environment – a strategy that protects government finances while still appealing to savers who value the 100% HM Treasury guarantee.

A Smart Time to Lock In?

The Bank of England’s next monetary policy meeting is on 7 August, and a reduction in the base rate is highly anticipated, which could prompt another downward shift in savings rates across the board.

So, it’s a case of checking what top rates are available at the time your bond is maturing.

And for those who are able to lock some or their cash up for longer, it might make sense to do so as interest rates are expected start to fall over the coming months. The top 5-year bond is paying only marginally less than the top 1-year bond at the moment, at 4.51%, with Birmingham Bank. This is the highest 5-year rate we've seen for months.

If rates do fall, as predicted, you might be glad a year from now that you locked in today’s higher rates for the long term.

For those with larger cash holding that are looking for a simple way to spread their cash, whilst earing more competitive rates, a cash savings platform could be a great option.  

You can now open, access and switch between multiple competitive savings accounts via a single log-in with the our Savers Hub cash platform – powered by Insignis.

Why not see how much you could be earning by requesting a free no obligation illustration today.

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