NS&I cancels top fixed rate bond paying 6.2 per cent after just five weeks: are more rates about to drop?
- NS&I withdraws undefeated 6.2 percent guaranteed growth bonds from sale
- But experts say this is bad news for two reasons, as more rates are likely to fall.
National Savings & Investments (NS&I) has retired its best-ever savings bond, which paid 6.2 per cent, and experts say this could mean more rates start to fall.
NS&I announced today that it is withdrawing its one-year Guaranteed Growth Bonds at 6.2 per cent, after launching the deal just over a month ago.
The unbeatable deal topped the best buys chart for weeks, with the next closest rate being 6.11 per cent, from Union Bank of India, Oxbury and Smart Save.
NS&I is also retiring its one-year Guaranteed Income Bonds, which also paid 6.2 per cent, with interest paid monthly.
Savers flocked to NS&I deals and 225,000 signed up.
Best Buy: NS&I’s unbeatable savings rate topped the best buy charts for over a month
NS&I chief executive Dax Harkins said: ‘This summer’s new one-year fixed rate bonds have been a great success. I am pleased that we have been able to keep them on sale for over five weeks, allowing over 225,000 savers to benefit from the highest interest rates we have ever offered on these products.’
Both bonds were withdrawn from sale this morning, but NS&I said it will accept postal applications “for a reasonable period”.
What’s next for bond rates?
Experts say NS&I’s withdrawal is bad news for competition and rates are now likely to fall.
The 6.2 percent rate was not only the best in the market for one-year bonds, but it also encouraged other banks to raise their rates.
Anna Bowes, founder of savings experts Savings Champion, said: ‘The five best-buy bonds were paying 6 per cent until NS&I launched that rate. As that bonus has been withdrawn, I’m afraid I’d expect competition on a year’s best buys to slow down again.’
Not only this, but many savings offers take into account the rises and falls of the Bank of England base rate.
It is currently 5.25 percent, after the Bank froze the rate in its decision last month.
Additionally, many of the best buy fixed rates have been valued on the assumption that the base rate would increase last month.
Since this did not happen, fixed rate bond rates are likely to fall.
Bowes added: ‘These bonds have been priced expecting the base rate to rise further than it did anyway. I was surprised when NS&I launched that bond at such a high rate and it seemed to generate a bit of extra competition.’
Myron Jobson, senior personal finance analyst at stockbroker Interactive Investor, said: ‘The move could be seen as an indication that the clock is ticking for savers to take advantage of high interest rates. The prevailing sentiment among economists is that interest rates are near their peak. If this is the case, the best deals will not be available for long.”
Why was the NS&I rate of 6.2 percent so high?
Many savings experts raised eyebrows when NS&I launched its 6.2 per cent best buy rate.
NS&I typically prices their offerings very carefully and rarely pays above market rates.
It does so because the state savings company has to balance its main objective – raising money for the Treasury – without ending competition from private banks.
The reason for the unusually good rate of 6.2 per cent was to help NS&I meet its Treasury targets for the amount of cash it has to raise by 2023/24.