For this week’s guide, Anna Bowes, savings expert from The Private Office, tells us about an unexpected move by the NS&I, and what it means for your savings…
The government-backed NS&I has boosted rates on some of its bonds after the Bank of England held the interest rate at 4% last week.
The savings bank increased rates on its guaranteed growth bonds and guaranteed income bonds, otherwise known as British savings bonds, by up to 0.31 percentage points:
- One-year British savings bond is up from 4.04% to 4.2% AER;
- Two-year bond from 3.85% to 4.1%;
- Three-year bond from 3.88% to 4.16%; and
- Five-year bond from 3.84% to 4.15%, the biggest rise.
The NS&I is thought to have made the “surprising move” because it has had more money flowing out than coming in over recent months.
Each tax year, it is set a target for the amount it must raise on behalf of the government – this is called its net financing target.
The amount withdrawn recently has added pressure on this target, which is £12bn for 2025/2026, with a margin of £4bn either side.
The latest data shows NS&I delivered £2.5bn of net financing between April and June 2025. If that pace were to continue, it would be in range but below the central target.
“This may explain the recent rate boost – designed to both attract new savers and encourage existing ones to stay put,” Bowes says.
The increases will be welcome news for anyone with maturing funds or looking to invest now, but other savers could be left feeling short-changed.
Around 225,000 people opened up the hugely popular market-leading one-year NS&I bond paying 6.2% AER, available between 30 August and early October 2023. Many accounts will have been reinvested as previous issues matured.
Those who rolled their money over between early September 2025 and now will have done so at the previous lower rates.
The bonds have a monthly interest option, giving savers the choice of a regular income or to have all the interest paid at the end of the term.
“This choice can be important, particularly for those who pay tax on their savings,” Bowes says.
“With the longer-term bonds, if you opt to have the interest added to your bond each year and left to compound, it won’t be accessible until maturity. And from a tax perspective, that means the interest will be treated as if it were received in one go at the end.
“This matters because you can’t spread the interest over the term for tax purposes, and your personal savings allowance (PSA) can’t be carried forward from one year to the next. So, if your total interest in the maturity year exceeds your PSA, you could find yourself paying tax on the excess – and possibly nudged into a higher tax band too, for that tax year.
“For many savers, this might not have a major impact, but it’s well worth keeping in mind.”
How do the new rates compare with the rest of the market?
The latest rates are certainly more competitive, particularly compared to high street banks, but there are still better-paying options available for those happy to look beyond the household names.
For example, a £50,000 deposit for 12 months would earn £2,100 (before tax) with NS&I’s one-year bond, compared with £2,225 at Conister Bank, which currently pays 4.45% AER.
So while NS&I’s new rates are a welcome step up, they don’t make it into the best-buy tables.
Here’s how its guaranteed growth bonds compare…
And here’s how its guaranteed income bonds compare…
Why do people opt for NS&I bonds?
Despite rarely offering the top rates, NS&I has huge loyalty based on its longevity and unique protection, Bowes explains.
“Every penny held with the provider is 100% backed by HM Treasury, offering unmatched peace of mind,” she says.
“You can invest up to £1m into each of these bonds, making it particularly appealing for those with larger sums who prioritise safety over the best returns.”
For most savers, however, whose balances fall below the £85,000 Financial Services Compensation Scheme protection limit that applies to all other regulated and authorised banks and building societies, there are still better-value options elsewhere.
“One increasingly popular solution for those with large cash holdings is using a cash savings platform, which allows you to manage multiple savings accounts, from easy access to fixed term bonds and ISAs, through one login,” Bowes says.
“These platforms make it simple to stay within FSCS limits while still being able to move quickly when new best-buy rates appear and when bonds mature, combining convenience and competitive returns.”