A safe place to keep money means various things for different people.
Some prefer banks, whilst others may prefer stashing it under the bed (although that’s not so safe!), but one of the most secure places for your savings comes in the form of National Savings and Investments (NS&I).
In its 156-year history, the NS&I has kept the nation’s money safe and sound, whilst funding its public-sector net cash requirement. HM Treasury offers a 100% guarantee on any money held using NS&I products, beating the £85,000 limit covered by the Financial Services Compensation Scheme (FSCS).
£11.8 billion has been saved using NS&I products in the past year; the most common being:
- Premium Bonds (£7.7 billion)
- Income Bonds (£6 billion)
- Direct Saver Accounts (£2.2 billion)
The rate of inflation as measured by the Consumer Price Index (CPI) at the time of writing was 2.6%. This means that savers will need a higher return rate than this to avoid a real terms loss.
Whilst your money may be secure with NS&I, how do the returns measure up to the rest of the market?
The most popular NS&I product was Premium Bonds. In the last year, £7.7 billion in bonds were purchased, bringing the total amount held to £70 billion (roughly the GDP of the Dominican Republic).
It’s no wonder that so much is held in Premium Bonds; 22 million people currently have them, equating to one in three people in the UK. With the potential of winning a £1 million prize, it’s no surprise that Premium Bonds have captured the nation’s hearts (and savings).
Rather than pay an interest rate, Premium Bonds are essentially a lottery, with each £1 bond assigned a number that gets entered into a monthly draw. There are limits to how much can be held at one time, with:
- £100 minimum
- £50,000 maximum
Whilst the chances of winning the grand prize are slim at best, lots of other prizes ranging from £100,000 to £25 are awarded each month. This makes Premium Bonds ideal for those who are happy to sacrifice a guaranteed rate of return for the chance of winning a prize.
Because of the tax-free nature of the prizes, and the fact that Premium Bonds can be bought and cashed in at any time, a comparable product would be a Cash ISA. At the time of writing, the best interest rate being offered by an instant access Cash ISA was 1.55%, from the Scottish Building Society.
Income Bonds came in second, with just over £6 billion being paid into them in the past 12 months. There are limits on how much can be held at one time, with:
- Minimum £500
- Maximum £1 million
Income Bonds benefit from a variable return rate, which is the appeal for many savers. Currently, the rate sits at 0.75%, but the past 10 years have seen highs of 4.8% and lows of 0.7%.
Over the past three years, the return rate has stayed below 1.75%, leaving savers with little chance of beating inflation.
Another draw for Income Bonds lies in the easy access nature; there are no fixed terms or notice periods to give when cashing in. A comparable product would be a traditional instant-access savings account, as the bonds are not tax-free. Any returns count towards the Personal Saving Allowance, which is currently:
- £0 if you are an additional-rate taxpayer
- £1,000 if you are a higher-rate taxpayer
- £500 if you are a basic-rate taxpayer
At the time of writing, the instant access account with the highest return was from Ulster Bank, offering an interest rate of 1.25%.
Direct Saver Account
The third most popular product was the instant-access NS&I Direct Saver account, with 2.2 billion paid in over the last year.
The rate of return has gradually dropped from 2% over the past seven years, and is currently 0.7%. While it offers a slightly lower interest rate than Income Bonds, the main draw for this account is the fact that it can be opened with just £1.
A comparable product that can be accessed any time and opened with £1 is from Ulster Bank, offering an interest rate of 1.25%.
Investment Guaranteed Growth Bond
Despite the name, Investment Guaranteed Growth Bonds are not investment products, as there is no risk to your capital. Instead, they essentially work as three-year fixed bonds that can be taken out in £100 increments up to a limit of £3,000.
The Investment Guaranteed Growth Bond was announced last year, with the hope it would be a market-leading, inflation-beating product for NS&I customers. Whilst it doesn’t quite beat inflation, it does sit near the top of the best-buy tables.
A comparable three-year bond is available from PCF Bank, offering a return of 2.22%.
Why do so many people save with NS&I?
NS&I products may not always (or often) sit at the top of the best-buy table, but millions of people are still saving with them. The £11.8 billion saved last year is expected to rise to £13 billion next year.
So, what is the main draw? For many, it’s the fact that HM Treasury guarantees any money saved with an NS&I product. A survey of 4,000 financial advisers conducted in 2016 found that 31% of clients saving with NS&I value the security over the returns.
Most traditional savings accounts are covered by the FSCS, but the limit is significantly lower with:
- FSCS covering £85,000 per person, per institution
- NS&I covering all money saved, regardless of the amount
We are here to help
For more information on making the most of your savings, Bev and Sarah are here to provide Independent Financial Advice in Nottingham and beyond.
Call them on 0115 933 8433.