National Savings and Investments has rolled out two new types of British Savings Bonds, with an available interest rate per annum reaching 4.6%. These are bonds at terms fixed for two years or five years and available with different interest payment options. With competitive rates, they aren’t tax-free, like Premium Bonds are. Consider these details before you invest.

NS&I has announced two new British Savings Bonds that could be appealing. These bonds can help you make money on your savings with fixed interest rates of up to 4.6% annually. Let’s break down what these new bonds are all about and if they are good options for your savings.

What are British Savings Bonds?

NS&I has launched two new types of savings bonds. You know them as the people behind Premium Bonds. These are known as British Savings Bonds. You can choose between a “Guaranteed Growth Bond” and a “Guaranteed Income Bond.”

Guaranteed Growth Bond: In this kind of bond, interest is paid yearly, but you can only get access to your cash once the fixed term comes to an end.
Guaranteed Income Bond: This bond pays interest monthly into a separate bank account of your choice.

Both bonds are fixed-term, meaning you tie your money up for either two or five years. You can’t get at your funds during this time.

Interest Rates and Comparisons

With these new bonds comes the potential to earn as much as 4.6% interest annually. This may sound quite nice, but it’s always good to draw a comparison with other available options for saving. Some other banks might offer slightly better interest rates, but NS&I does have one advantage.

Why Consider NS&I’s British Savings Bond

Safety: This is one of the major advantages of NS&I, in that it is fully guaranteed by the Treasury. Your money is absolutely safe. While most banks have your savings protected by the Financial Services Compensation Scheme up to £85,000, all of your pennies are safeguarded with NS&I. Therefore, if you intend to save more than this threshold, the bonds are very secure.
Monthly Payments: A guaranteed income bond pays interest on a monthly basis. For example, if you save £100,000 in a two-year bond, you would receive £383 each month in interest. This will be very useful if you need money on a regular basis from your savings.

However, this comes at a cost. If you choose the Guaranteed Income Bond, then you will lose some of the compound interest which you would have received under the Guaranteed Growth Bond.

Interest Rates and Market Comparison

There is a word of warning from Laura Suter, personal finance expert at AJ Bell: “Yes, these bonds are hugely popular and very safe, but you may get a better interest rate with another savings product. You might gain an additional £20 a year if you held a different £5,000 savings account.”.

The interest rates at NS&I represent a delicate balance between encouraging savers and controlling the influx of money. If the rates are too high, then NS&I risks exhausting all its bonds within the shortest time possible. If they are too low, their savers may defect to other banks.

Tax Considerations

The important thing to note here is that British Savings Bonds are not tax-free. Unlike NS&I’s Premium Bonds, interest earned from British Savings Bonds, like any other savings account, comes with tax.

Depending on the products available at the time you apply, if you choose the Guaranteed Growth Bond, all the interest paid at maturity may be subject to tax if you exceed your personal savings allowance. If you don’t want this to happen, the Guaranteed Income Bond may be the product that would suit you best, since it pays interest on a monthly basis.

How to Open a British Savings Bond

Opening a British Savings Bond is pretty straightforward. You can apply on the NS&I website. You must save at least £500 to open an account and are able to save up to £1 million. You don’t need to be a current NS&I or Premium Bonds customer to apply.

Key Things to Remember

Fixed Terms: Both bonds are fixed-term, so you won’t be able to get at your money before the end of the term. If you feel that you might need easy access to your savings, consider other options, such as easy-access accounts like Leeds Building Society’s offering an interest rate of 4.85% with no withdrawal limits.
Interest Options: Decide whether you would prefer monthly interest or a one-off sum at the end of the term. Having the money paid out each month can be useful for income purposes, but the Growth Bond could provide higher overall returns by rolling up the interest and providing the compound interest effect.

In summary, NS&I’s new British Savings Bonds offer a competitive interest rate and an extremely high level of security but amalgamate tax considerations and fix the term. They are good if you want to safely park your money and have no immediate use for it. Always balance the benefits against any other savings options available and consider your personal financial needs when making a decision.