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I have a feeling National Savings and Investments (NS&I) will have to increase its premium bond award rate or launch an attractive new product this year to attract savers’ cash.
This is because it has revealed details of its new British Savings Bond, announced with much fanfare in the Spring Budget.
And it turns out to be a wet firecracker: nothing more than another three-year bond with a mediocre rate.
As I predicted, Guaranteed Growth Bonds and Guaranteed Income Bonds went on sale in the first week of April at a rate of 4.15 percent annually, or 4.07 percent if you want interest paid each month .
Industry insiders tell me that NS&I could face difficulties in encouraging savers to purchase these new bonds.
Best seller: NS&I’s new British Savings Bond is just another three-year bond with a mediocre rate, so will it now offer a better premium rate on Premium Bonds?
For starters, three-year bonds tend to be unpopular. Almost all savers prefer easy-access accounts or one-year bonds.
For example, three-year deals account for just half a percent of the money coming into Hargreaves Lansdown’s savings platform because savers want easy access and shorter-term bonuses.
If savers don’t buy these British savings bonds, NS&I will have to do more to attract us to their products.
That’s why I think more prizes could be at stake for holders of Premium Bonds, their best-seller. Let’s hope it does more for Isa savers too. The only thing NS&I offers is the easily accessible Direct Isa at a dismal 3 per cent.
The Government-backed bank has a lot of work to do when it comes to attracting savers.
The Treasury wants to provide £9 billion (in a range of £5 billion to £13 billion) of new money in its current financial year. It also needs to hold on to the money currently in its popular one-year bond, which matures at the end of this year.
If NS&I doesn’t find a competitive replacement, that money could fly away, leaving NS&I short of its goal.
Although UK bond rates are lower than other bonds on the market, I still think some savers will be tempted. This is because you can contribute between £500 and £1 million and it is all guaranteed by the government.
This makes bonds popular with wealthy savers, as banks and building societies cover £85,000 in cash for savers as part of the Financial Services Compensation Scheme (FSCS), so you can put all your money in NS&I instead of having to distribute it. around numerous suppliers and control multiple accounts.
But if you opt for British savings bonds, be careful about taxes. The way they are structured means that you don’t need to have a lot of savings before you risk incurring a tax bill.
Flexible Isa rules will help savers
The new tax year arrived last Saturday, giving us a new Isa allowance.
You can deposit another £20,000 into cash Isa savings accounts and all your interest will automatically be tax-free.
You have until April 5 of next year to use this subsidy.
The new rules, which came into force on April 6, mean you can now open more than one cash Isa in a tax year. This allows you to split your money between fixed rate and other easily accessible Isas, as long as your provider allows this.
It means that if you open an Isa now with part of your allowance, you will be able to open another one later in the year.
The onus is still on you to ensure you don’t put more than £20,000 into Isas during the tax year.
Sy.morris@dailymail.co.uk