NS&I interest rate boost - are the government backed savings worth it?

National Savings and Investments has increased the returns on offer to its regular savers ‒ we explain the what the new rates mean for your money

Person counting pennies in a jar using calculator
(Image credit: Getty images)

Around 1.3 million savers will pocket higher returns from their savings accounts, after National Savings & Investments (opens in new tab) (NS&I) hiked the rates it pays on several of its saving deals, but they still lag behind the best savings accounts.

Rates are being increased across accounts allowing savers easy access to their money, helpful if you want the peace of mind that comes from being able to tap into your savings pot as the cost of living continues to climb.

But, with inflation at a 40 year high, finding a real term return on your money isn’t possible. 

Here we explain how rates are changing and what it means for your money.

NS&I products with interest rates increasing

The interest paid by NS&I’s easy access Direct Saver (opens in new tab) account is increasing from 0.5% to 1.2%. It can be opened with as little as £1, with interest paid on an annual basis. A £500 deposit will now earn £6 instead of £2.50. 

The same increase is taking place on NS&I’s Income Bonds (opens in new tab), which will now also pay 1.2%. These are also easy access accounts, though the interest is paid monthly, making them a more useful option for people looking to enjoy some level of regular income from their savings. However, you will need at least £500 in order to open one.

Young savers with an NS&I Junior ISA will also see their rates increase, from 1.5% to 2.2%. Again these can be opened with just £1, though Junior ISAs are subject to a smaller annual saving limit of £9,000.

NS&I is also increasing the rates on certain products which are not currently on sale to new savers, such as its Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates. As a result, people who already hold these accounts will see a greater return when the rate rises kick in on 1 August.

We have detailed all interest rate changes in the table below:

Savings accountPrevious interest rateNew interest rate (gross, from 21 July 2022)
Direct Saver (easy access)0.50%1.20%
Income Bonds (easy access)0.50%1.20%
Direct ISA (easy access)0.35%0.90%
Junior ISA1.50%2.20%

We have detailed all upcoming interest rate changes for fixed term products in the table below:

Savings accountPrevious interest rateNew interest rate (gross, from 1 August 2022)
One-year Guaranteed Growth Bond0.10%1.85%
Two-year Guaranteed Growth Bonds0.15%2.25%
Three-year Guaranteed Growth Bonds0.40%2.55%
Five-year Guaranteed Growth Bonds0.55%2.55%
One-year Guaranteed Income Bonds0.06%1.80%
Two-year Guaranteed Income Bonds0.11%2.20%
Three-year Guaranteed Income Bonds0.36%2.50%
Five-year Guaranteed Income Bonds0.51%2.50%
Two-year Fixed Interest Savings Certificates1.30%2.15%
Five-year Fixed Interest Savings Certificates1.90%2.45%

How do NS&I interest rates compare to other savings accounts?

While the interest rate increases mean NS&I deals are more competitive, they aren’t market-leading.

If you’re looking for a better return from an easy access account for example you can get 1.56% from Virgin Money (opens in new tab) for savings up to £25,000

Similarly, if you’re hunting for the best possible rate on a cash ISA then you can get 1.5% from Newcastle Building Society’s Triple Access ISA (opens in new tab). As the name suggests, you can only access cash from this account three times per year before the rate falls, so it won’t be suitable if you regularly dip into your ISA pot.

Sarah Coles (opens in new tab), Senior Personal Finance Analyst at Hargreaves Lansdown points out that NS&I is given a target by the Treasury for how much money it needs to bring in each year from savers. She adds: “It’s still not the best on the market, but with a net financing target of just £6 billion this year, it doesn’t need to be in order to attract the cash it needs.”

What about NS&I Premium Bonds?

NS&I’s most popular savings account is the Premium Bond. In fact, it’s the nation’s favourite savings account, with bonds being held by around 21 million people across the UK.

Premium Bonds are different from other forms of savings account, in that you don’t actually earn interest on them. Instead you are entered into a monthly draw, with the chance of winning cash prizes of up to £1 million.

Back in May NS&I increased the prize rate on Premium Bonds, meaning more savers are in with a chance of winning a prize.

Why save with NS&I?

NS&I is an unusual savings provider because it’s backed by the government, meaning every penny you save in one of its accounts is protected.

This isn’t the case with banks and building societies. They are signed up to the Financial Services Compensation Scheme (FSCS) (opens in new tab), which protects the first £85,000 you save with each financial institution should a bank go bust.

This limit applies to the overall banking group, rather than individual banking brands ‒ so if you deposit £85,000, any other money saved within the same banking group is not protected.

For example Lloyds Banking Group owns high street banks Lloyds Bank, Halifax and Bank of Scotland plus other firms.

If you have significant savings, and you want to enjoy full protection, then you’ll need to spread the money across different accounts with different banks. But, the appeal of saving with NS&I is that you can enjoy that full protection all from a single account.

Coles notes that for the vast majority of savers, all of their money is protected anyway. “However, for some people, this doesn’t give them the same sense of security as knowing they have the Treasury guarantee. It means they value it highly enough to accept that they may not get the top rate on the market.”  

There is a downside to consider, though. Because of the way that NS&I is funded with taxpayer money, it doesn’t tend to offer market-leading rates. At their best NS&I’s deals are competitive, rather than table topping.

John Fitzsimons
John Fitzsimons

John Fitzsimons has been writing about finance since 2007, and is a former editor of Mortgage Solutions and loveMONEY. Since going freelance in 2016 he has written for publications including The Sunday Times, The Mirror, The Sun, The Daily Mail and Forbes, and is committed to helping readers make more informed decisions about their money.