MEZIESBLOG

NS&I has announced rate increases across its guaranteed growth bonds and guaranteed income bonds – otherwise known as British savings bonds. 

The new issue of the one-year British savings bond has increased from 4.07% to 4.5% AER, while the two-year bond has increased from 3.98% to 4.48%. 

The three-year bond has increased from 4.02% to 4.45%, while the five-year bond has had the lowest increase, from 4.05% to 4.4%.

The bonds also have a monthly interest option, giving savers the choice of either a regular income or having all the interest paid at the end of the term. 

“This choice can be important, particularly for those who pay tax on their savings,” says Bowes.

“With the longer-term bonds, if you opt to have the interest added to your bond each year and left to compound, it won’t be accessible until maturity. 

“And from a tax perspective, that means the interest will be treated as if it were received in one go at the end. If your total interest in the maturity year exceeds your personal savings allowance, you could find yourself paying tax on the excess – and possibly nudged into a higher tax band too.” 

Why have the rates changed now? 

The rate changes were announced before the Bank of England’s rate-setting decision at 12pm today, when it is expected to hold it at 3.75%. 

Before the war in Iran broke out, there was a strong chance the Bank would have cut the rate today. 

But with the price of fuel rocketing, and concerns that inflation could rise, the prospect of base rate cuts have been put on hold until the summer.

While that is bad news for those with debt, it’s been a boost for savers as rates have improved significantly, especially fixed rate accounts, Bowes explained. 

As well as reacting to the rest of the market, NS&I often changes the rates on offer to either increase or stem the flow of funds into the state-owned bank to meet its net financing target. 

This is the amount NS&I is tasked with raising on behalf of the government each tax year – and takes into account both inflows and outflows. 

For 2026/27, that target has been increased from £13.6bn for 2025/26 to £15bn this tax year.

“In addition, the recent back office issue that was unearthed, that many bereaved families had not been repaid all the funds from their loved ones’ accounts following a bereavement claim, may have led to some withdrawing their funds, which will need to be replaced,” says Bowes. 

Are the new rates competitive? 

These latest rates are certainly more competitive, particularly compared to the high street, Bowes adds. 

However, there are still better-paying options available for those happy to look beyond the household names. 

For example, a £50,000 deposit for 12 months would earn £2,250 (before the deduction of tax) with NS&I’s one-year bond, compared with £2,335 with Sharia provider Kuwait Finance House (via the Raising UK cash platform), which pays an expected profit rate of 4.67%.

So, although NS&I’s new rates are a marked improvement, they don’t make it into the best-buy tables.