Boost for more than 1.3m savers as NS&I announces rate hikes

More than 1.3 million people will see a boost to their savings as NS&I increases the interest rate on some products.

The rates paid on the Direct Saver, Income Bonds, Direct Isa and Junior Isa have been increased from Thursday, the Treasury-backed body said.

The Direct Saver and Income Bond rates have increased from 0.5% to 1.2%, the Direct Isa has gone up from 0.35% to 0.9% and the Junior Isa rate has increased from 1.5% to 2.2%.

The rates paid on Guaranteed Growth Bonds, Guaranteed Income Bonds and Fixed Interest Savings Certificates will increase from August 1. These products are not currently on sale and the new interest rates are only available to customers with maturing investments.

The Bank of England has recently made a string of base rate hikes, and there has been speculation that further increases could be on the horizon. Savings providers generally have been increasing their rates in recent months.

The rises follow a recent increase in NS&I’s Premium Bonds prize fund rate, which meant an additional 1.4 million prizes were paid out in the June prize draw.

NS&I, which has a duty to balance the interests of savers, taxpayers and the wider financial services sector, said the changes will ensure its products are priced appropriately compared with the rest of the savings market.

Chief executive Ian Ackerley said: “NS&I is one of the largest savings organisations in the UK and we’re pleased to increase our interest rates, helping to ensure that more than 1.3 million savers across the country will see their savings nest eggs boosted.”

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “The current rates aren’t market-leading, but they are within shouting distance of the best around, and they will appeal to plenty of savers.

“The best easy access rates on the market come with caveats, so in order to get the top rate of 1.6% from Al Rayan you need at least £5,000.

“For others you need to move your current account, or agree to only access your money a handful of times during the year.

“The Junior Isa is also among the handful of highest interest rates on the market.

“NS&I is a well-known and trusted brand, the money is 100% protected by the Treasury, and it offers people enormous peace of mind at a time when we value some certainty.

“For parents in particular, the decision of where to put Jisa money carries emotional heft, so the comfort of the brand will be particularly valuable.

“The Direct Isa, by contrast, is still a bit of a disappointment even after the rate rise.

“It remains well behind the market leaders, and when you can get 1.4% from Cynergy Bank with no strings attached, the gap may well be too big for even the most ardent NS&I fans.

“NS&I can’t afford to fall too far behind the market. In the last tax year, funding came in at the lower end of the target, and it has a similar net funding target this year.

“It means this may not be the last of the hikes. When the next base rate hits town as early as August 4, with a rise of as much as 0.5 percentage points, NS&I may need to up its game again.”

Here are the previous rates paid on NS&I products followed by the new rates from Thursday:

– Direct Saver, 0.50% gross/AER (annual equivalent rate), 1.20% gross/AER

– Income Bonds, 0.50% gross/AER, 1.20% gross/1.21% AER

– Direct Isa, 0.35% gross/AER, 0.90% gross/AER

– Junior Isa, 1.50% gross/AER, 2.20% gross/AER

Here are current rates for some fixed-term savings products currently not on sale and the new rates from August 1:

– Guaranteed Growth Bonds (one-year), 0.10% gross/AER, 1.85% gross/AER

– Guaranteed Growth Bonds (two-year), 0.15% gross/AER, 2.25% gross/AER

– Guaranteed Growth Bonds (three-year), 0.40% gross/AER, 2.55% gross/AER

– Guaranteed Growth Bonds (five-year), 0.55% gross/AER, 2.55% gross/AER

– Guaranteed Income Bonds, (one-year), 0.06% gross/0.06% AER, 1.80% gross/1.81% AER

– Guaranteed Income Bonds (two-year), 0.11% gross/0.11% AER, 2.20% gross/2.22% AER

– Guaranteed Income Bonds (three-year), 0.36% gross/0.36% AER, 2.50% gross/2.53% AER

– Guaranteed Income Bonds (five-year), 0.51% gross/0.51% AER, 2.50% gross/2.53% AER

– Fixed Interest Savings Certificates (two-year), 1.30% tax-free/AER, 2.15% tax-free/AER

– Fixed Interest Savings Certificates (five-year), 1.90% tax-free/AER, 2.45% tax-free/AER