NS&I launches British Savings Bonds - reaction from AJ Bell's Suter - IFA Magazine

The Income and Growth versions of British Savings Bonds are now available with an interest rate of 4.15%. However, it's important to note that this rate is lower than the top three-year bond that offers a rate of 4.63%. Nevertheless, the good news is that the investment limit has increased significantly from £10,000 to £1 million.

AJ Bell's director of personal finance, Laura Suter, has given her opinion on the matter stating that...

In the Spring Budget, the chancellor revealed the introduction of fresh savings bonds with the aim of using patriotism to generate more revenue for the government. These bonds are essentially a clever marketing ploy, and are not dissimilar to depositing your funds in other NS&I products. Although they are labelled as 'British Savings Bonds', the money will be deposited into the government's general funds, just like any other revenue raised by NS&I.

The provider that has support from the government has chosen to rename the Guaranteed Income and Guaranteed Growth bonds, and now they're offering a new version of those accounts that will last for three years. The previous one-year version of the bonds was released last fall and was very successful. It sold out in only five weeks! Nevertheless, even though these new bonds are similar, the interest rate is lower than before. The interest rate on the previous bonds was 6.2%, which was much higher than what they're offering now.

The interest rate for British Savings Bonds is only 4.15%, which is not as good as other providers who offer higher interest rates on three-year bonds. This means that if you choose to save with NS&I, you will be sacrificing some returns. It's important to consider if this sacrifice is worth it for you. A few providers offer a top three-year bond with an interest rate of 4.63%. That means if you save £5,000, you will lose £24 of interest annually by choosing British Savings Bonds, which is equivalent to £2 monthly. If you decide to save up to a maximum of £1 million, you will lose a significant amount, which is £4,800 of annual interest.

According to NS&I, they aimed to set the price of these bonds at a level that will make them appealing, but not too popular that they sell out quickly. This new product for the mid-market customer may achieve just that. NS&I faces a challenge in finding the appropriate interest rate for these bonds, as they don't want to attract an excessive amount of funds or lose customers to other providers due to low rates. Moreover, setting the right interest rate from the outset is essential to avoid having to increase the rate later on.

The British Savings Bond, a new product from NS&I, has officially replaced the Green Savings Bond. The latter had a fixed rate of 2.95% and was specifically designed to finance eco-friendly government projects. However, the British Savings Bond offers a more attractive interest rate, making it a more appealing option for those who are not entirely committed to supporting green initiatives.

The information presented in this blog is sourced from Moneyfacts and is up-to-date as of April 3rd, 2024.

Before making a purchase, there are certain factors that you should take into account. These considerations can help ensure that you make an informed decision and are satisfied with your purchase. Firstly, you should think about your budget. How much are you willing to spend on the item? It's important to set a budget and stick to it to avoid overspending. Secondly, you should consider the quality of the product. Is it made with durable materials and built to last? Will it meet your needs and expectations? Thirdly, you should think about the brand. Does the brand have a good reputation for producing high-quality products? Are there any negative reviews or complaints about the brand? Fourthly, you should consider the features and functionalities of the item. Will it meet your requirements and make your life easier? Is it easy to use and maintain? Finally, you should think about the after-sales services provided by the seller. Will they offer a warranty or return policy? Will they provide customer support if you encounter any issues with the item? By taking all of these factors into account, you can make a smart and well-informed purchasing decision that you will be happy with.

Previously, NS&I permitted individuals to withdraw their money early from these bonds by forfeiting some interest. However, that choice is no longer accessible, resulting in the money being locked up for the entire three-year period without any possibility of early withdrawal.

A couple of years back, NS&I set a limit on the Guaranteed bonds investing, capping it at £10,000. However, presently this value has skyrocketed to £1 million for the British Savings Bonds. Please note that the minimum investment will still be pegged at £500. This means that anyone with savings below this amount will not be able to use this account.

Choose between receiving the interest payments upfront or at a later point in time. By opting for the "Income Bond", you will receive the interest on a monthly basis and be able to utilize the funds as you please. This may be a favorable option for individuals relying on a steady monthly income to cover expenses such as retirees. Otherwise, selecting the "Growth" option allows the interest to accumulate and be added to the existing bond on an annual basis. This is an ideal choice for those who do not need the extra income at the moment.

Don't forget about taxes: Even though NS&I's Premium Bonds are exempt from taxes, other bonds are not. This means that you may have to pay taxes on the interest you earn. Fortunately, the Personal Savings Allowance gives most individuals a tax-free threshold for their savings earnings before they get taxed. For those with a basic-rate income, this ceiling currently stands at £1,000, while those with a higher income earn only £500. Unfortunately, additional rate tax payers aren't eligible for any tax-free allowance. Once you surpass this limit, your earnings will be taxed in accordance with your income tax rate. If you're expecting to face a tax bill for your earnings, you might want to consider investing in an ISA instead and weighing up the benefits for your cash savings.

NS&I is a government-supported bank, but is this really necessary? Many people choose NS&I because they believe it's the safest place to keep their money since they are backed by the government. However, other banks and building societies are also protected by the Financial Services Compensation Scheme. This scheme safeguards up to £85,000 of money per person, per financial institution. Essentially, this means that other banks with FSCS protection can be just as secure as NS&I. Nonetheless, despite this, many individuals may still feel more secure having their savings held with the government. Additionally, those with significant savings may prefer to invest with NS&I rather than splitting their funds into smaller £85,000 amounts with different firms.