How savers with NS&I are getting worse rates than people who shop around

Savers who have deposited their money in fixed accounts with state-owned National Savings and Investments (NS&I) are seeing their returns lag behind those who shop around for the best deals, new analysis shows.

Last year, NS&I accounts were among the best on the market, with its one-year fixed deal offering a rate of 6.2 per cent – which could not be beaten by any private bank.

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But now, its accounts pay well less than the best out there. Its most recent one-year fixed rate growth bond, issued last week for customers renewing, offered a rate of just 3.95 per cent.

The best deal on the market, from Habib Bank Zurich, pays 4.8 per cent.

Last week, it also issued a two-year bond available to all at a rate of 3.6 per cent, but this falls one percentage point behind Secure Trust Bank’s 4.61 per cent offering.

For £10,000 or more saved, an interest rate difference of 1 percentage point means savers get over £100 extra a year in returns.

So those opting for NS&I accounts risk losing out to those who are more savvy with their cash.

Interest rates have fallen to 4.75 per cent with savings rates also following suit.

However, NS&I’s current rate is below the Bank of England’s base rate. It is expected that interest rates will stay the same when the Bank’s Monetary Policy Committee (MPC) meets next week.

How NS&I accounts have compared to the best on the market over time

Below shows how NS&I’s bonds have compared to the best on the market, over time.

Experts have said that there are some reasons that customers may go for NS&I, even though there are better deals on the market.

The key reason is that if you bank with a regulated bank or building society in the UK then, if your bank goes bust, you’ll automatically get your money back, but only up to a maximum value of £85,000 per financial institution.

NS&I has the backing of HM Treasury, so all of your money is protected.

Andrew Hagger of Moneycomms said: “The main benefit with NS&I is that you don’t have to worry about the £85,000 financial services compensation scheme (FSCS) limit, so customers with six-figure plus savings balances may find it more convenient to put it all with NS&I rather than splitting it between banks in £85,000 chunks.

“Although it may be convenient, the returns will be lower than the best-buy fixed rate bonds, so the convenience comes at a price.”

Rachel Springall of Moneyfacts added: “NS&I are a trusted brand and provide 100 per cent capital security, so these bonds may still be appealing to savers with big pots who are happy to forgo higher interest rates available elsewhere.  

“It’s worth remembering that NS&I need to ensure they are on course to meet their net financing targets, so they must price their accounts accordingly.

“NS&I traditionally would react to any interest rate moves within the wider markets, to ensure they are not sitting head and shoulders above the competition. With this in mind, NS&I are not immune to rate cuts, so savers do need to keep an eye on their accounts.

“However, when the UK experiences an economic crisis, NS&I can step up to entice deposits to help the Government to raise money and support the economy, which we have seen in the past.”

Best savings accounts on the market

Below are some of the best savings accounts on the market, according to the Savings Champion website:

• Easy access – Atom Bank (4.85 per cent)
• One-year – Habib Bank Zurich (4.80 per cent)
• Two year – Secure Trust Bank (4.61 per cent)
• Three-year – DF Capital (4.61 per cent)
• Five-year – Atom Bank (4.60 per cent)