NS&I British Savings Bond rates increase to more than 5%

National Savings & Investments (NS&I) has increased the interest rates on its Guaranteed Growth and Guaranteed Income Bonds, also known as British Savings Bonds, for the second time within two months. The latest rates, which came into effect on 6 October, are a welcome improvement for savers looking to lock away their money for a guaranteed return. But while the increases make these accounts more competitive, there are still better rates available elsewhere.

So, what has prompted another round of increases, and should savers be tempted?

Why is NS&I increasing rates again?

Unlike standard banks and building societies, NS&I’s role is to raise money for the government in a cost-effective way, so rather than trying to get to the top of the best buy tables, it adjusts its interest rates to attract enough money to meet its net financing target. The net financing target is the amount of money it aims to raise through its savings products, after deducting the money paid out to savers.

For the 2026/27 financial year, this target has been set at £15 billion, within a range of plus or minus £4 billion, up slightly from £13 billion the year before.

However, its provisional results for the first quarter, covering April to June, show that it raised just £1 billion in net financing. That is a worryingly slow start towards its annual target, particularly given that the previous financial year delivered £12.1bn.

NS&I itself acknowledged that the first quarter's result was lower than anticipated.

As well as the rates on offer simply becoming increasingly uncompetitive, earlier in the year NS&I confirmed that there had been an issue where the estates of some deceased customers were not always repaid money from all of their accounts following a bereavement claim. It has been estimated that around 37,500 cases could have been affected, involving as much as £476 million.  

It’s difficult to say how much this may have affected savers' decisions, but it’s perhaps had a more damaging effect than we may have initially thought.  

Against that backdrop, further rate hikes were perhaps inevitable. If NS&I wants to attract more money, it needs to offer savers a sufficiently attractive reason to choose its accounts over the alternatives.  

What are the new British Savings Bond rates?

The new issues offer fixed rates for new and existing customers over one, two, three or five years, with savers able to choose between Guaranteed Growth Bonds, which pay interest at maturity, and Guaranteed Income Bonds, which pay interest monthly. 

While it is encouraging to see rates improving, as ever savers should not assume that an increase automatically makes an account one of the best options available.

Can you get a better rate elsewhere?

The short answer is yes. If you are prepared to shop around, there are higher rates available across all four fixed terms.

For example, based on the rates available at the time of writing, Close Brothers Savings and Union Bank of India UK are both offering 5.12% on a 1-year bond, while Oxbury Bank pays 5.21% over two years. Chetwood Bank offers 5.23% over three years, and GB Bank pays 5.37% over five years.

To put that into perspective, on a £50,000 deposit, the difference between NS&I's 1-year Guaranteed Growth Bond rate of 4.99% AER and the 5.12% with Close Brothers would be £65 over a year.

Over a longer period, the difference can become more significant. On a £50,000 deposit, a rate of 5.37% produce £2,685 in interest over a year (before the deduction of tax), compared with £2,585 at NS&I’s 5-year rate of 5.17%. That’s a difference of £100 in the first year alone. Over the full 5-year term, the gap would grow to more than £600 if interest is compounded annually, meaning you earn interest not only on your original deposit but also on the interest added each year. 

Of course, the best account for you will depend on more than just the headline rate. Minimum and maximum deposits, the length of time you are happy to tie up your money for and accessibility of the interest all matter.  

But the bottom line is, as long as the provider you are considering is part of the Financial Services Compensation Scheme (FSCS) then as long as the amount you have invested with the provider is within the limit of £120,000 per person, it’s fully protected.

Should you choose a British Savings Bond?

One of NS&I's biggest attractions is the security it offers. Unlike deposits with banks and building societies, which are protected up to the FSCS limit, NS&I savings are backed in full by HM Treasury. This means savers can hold larger cash balances without needing to spread their money across several banking licences to obtain equivalent protection.

NS&I's latest rate increases are good news, as they bring British Savings Bonds closer to the leading rates in the market. But savers should compare the options, consider how much protection they need and make sure their money is working as hard as it reasonably can.

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Rates correct at the time of writing.

This article is for general information only and does not constitute individual financial advice.

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