National Savings and Investments is offering another great fixed rate that, unusually, puts it near the top of the best buy charts.
Anyone among the 225,000 savvy savers who bought Growth or Guaranteed Income Bonds last summer is getting a second chance when their doses run out.
NS&I offers an interest rate of 5.15 per cent for those who lock in the interest for one year or 5.03 per cent for those who prefer a monthly interest rate.
Grab it while you can – it looks like an incredibly value investment for a one-year fixed rate bond at a time when banks and building societies are cutting rates.
Since the base rate fell earlier this month, I have tracked more than 140 rate cuts on fixed-rate deals, with more to come.
Top rate: Anyone who purchased NS&I Growth or Guaranteed Income Bonds last summer is being offered 5.15% for those who lock in their rate at one year or 5.03%
Launched late last month, before rates began to fall, these NS&I bonds are only offered if you already have a bond with the government’s savings arm.
As your current bond approaches maturity, whether it’s the one, two, three or five-year version, you can reinvest it at these great rates.
Even the two-year NS&I bond, available to all savers, looks attractive as rates from other providers are plunging. Launched last week, it offers 4.6 per cent.
By comparison, the best two-year bond offers just 0.2 percentage points more: it is from Nottingham BS and pays 4.8 percent. Just a week ago, the top rate was 5 percent from RCI Bank, but that account now pays 4.7 percent.
But don’t forget about these NS&I rates, I don’t think they’ll stay that way for long. It’s just a question of when they will be cut, not if they will be cut.
A hint that emerged today could give us an indication of how long current NS&I bond rates will remain in place.
This morning the government announced the inflation rate for the year to July. It currently stands at 2%, but if it rises, as many economists expect, rates could remain high for longer.
NS&I will contact existing bondholders one month before their bills are due to mature to ask if they wish to roll over or cash them in.
But don’t wait until your bond matures to make a decision, as you don’t want to be caught short if NS&I cuts rates before then.
NS&I is a national favourite because it allows you to save up to £1 million and enjoy the fact that all your money is protected by the government.
This gives it great appeal for those with larger balances, as well as those who appreciate government protection.
Other banks and building societies guarantee protection up to a maximum of £85,000 per person under the Financial Services Compensation Scheme.
You can still earn more than 5 per cent on a one-year contract with a handful of providers outside of NS&I if you’re willing to manage your account online, including Union Bank of India UK (5.25 per cent), Access Bank (5.10 per cent) and SmartSave Bank (5.02 per cent).
Experts tell me that savers are showing interest in two-year bonds as interest rates are expected to fall.
But be careful about when interest is paid on long-term bonds. Some of them, including NS&I’s Guaranteed Growth Bonds, only pay interest when the bonds reach the end of their term rather than every year, and this could leave you with a hefty tax bill.
This is because since all interest paid in a year is counted as part of your personal savings allowance in that tax year, opt for accounts that pay interest annually if you are concerned about taxes on your savings.
Basic rate taxpayers receive an allowance of £1,000 a year – this is the amount of interest they can earn on an ordinary savings account before they have to pay tax.
As a higher rate taxpayer, you receive £500, while additional rate taxpayers pay tax on all the interest they earn.
