Who are NS&I?
NS&I have offered financial products for over 150 years. They are a popular provider, with over 25 million customers investing more than £147 billion.
NS&I are backed by the Government, and as such, customers benefit from a 100% guarantee on their savings, while other banks and building societies are covered by the Financial Services Compensation Scheme for a maximum of £85,000 per person.
Guaranteed Income Bonds
Guaranteed Income Bonds offer a fixed rate of interest, which is paid monthly into the saver’s nominated bank account. They are offered on both one-year and three-year terms.
The interest is deposited into the customer’s personal account without having tax deducted. However, they contribute toward the Personal Saving Allowance (PSA), which means that they could be subject to Income Tax if they breach the PSA limit.
Prior to the announcement, three-year Guaranteed Income Bonds carried an interest rate of 2.20%. Customers buying into this product after 6th March 2018 will see returns of just 1.95%, in comparison.
To invest in Guaranteed income bonds, customers must:
- Be aged 16 or over
- Make an initial £500 investment
- Invest online
- Not need to access their investment for three years
Guaranteed Growth Bonds
Guaranteed Growth Bonds are similar to Guaranteed Income Bonds, in that they are available in both one and three-year terms and the interest rate is fixed for the duration. However, rather than being deposited into a customer’s personal account, monthly returns are added to the investment, so that the it can accumulate, and the returns increase over time.
Interest is added to the investment without deducting tax. However, like the Guaranteed Income Bonds, the interest counts toward, and could breach, the Personal Savings Allowance.
The interest rate cut means that three-year Guaranteed Growth Bonds are now offered at a rate of 1.90%, down from 2.15%.
It has been confirmed that those who currently hold Guaranteed Growth Bonds will be offered the opportunity to reinvest at the old interest rate when their Bonds mature.
However, Sarah Coles, Hargreaves Lansdown personal finance analyst, explains why this offer may not be as generous as it first appears:
“In the current market you can get up to 2.26% over this period. When any fixed rate matures, it’s a valuable opportunity to revisit whether you need more flexibility, whether you want to fix for longer, and whether cash is the right place for this part of your portfolio at all.”
(Source: Hargreaves Lansdown)
What are the alternatives?
Have you been thinking about investing in Guaranteed Growth or Income Bonds or are you an existing customer who is looking for alternatives when your current Bonds mature? It is worth considering whether other products and providers could benefit you. Consider your position on:
Access: Where holding your money in three-year Bonds may have been suitable previously, have your circumstances changed in a way which could see you needing to access your savings on an immediate basis? If so, you will need an instant-access savings account, rather than a bond. Currently, that is likely to mean that the interest rate you get is lower, but the security of having funds available in an emergency could be worth it.
Interest rate types: If you can afford to have money tied up in savings, then you need to consider whether to go for fixed or variable rates. Whilst fixed rates mean that your interest rate cannot drop until the end of your term, it also means that you are unable to access higher rates, should the base rate increase during the term of your investment. Reports from Mark Carney, BoE Governor, suggest that more base rate rises are to be expected throughout the next two years.
Attitude to risk: If it is still the case that you can afford to have money tied up in longer-term investments, then you may wish to consider your options on the stock market. Of course, this comes with risk and you may get back less than you put in to begin with. However, long-term investments have more potential of substantial returns.
To discuss the best ways of making your money work for you, please contact Sarah or Bev on 0115 933 8433.