Has NS&I become Covid-19’s war bond issuer?

Ms Bowes highlighted the historic context behind the language equating NS&I with ‘war bonds’. 

She said: “During the first world war, an increased need for the government to borrow money saw the launch of War Savings Certificates in 1916 and National War Bonds in 1917. The former cost 15s and 6d each and became worth £1 within five years. The latter paid 5 per cent interest.

“The amount raised during the first world war was almost £433m [around £30bn based on 2019 values].”

Similarly, the Savings Bank ran a nationwide campaign to help fund the second world war, including a new issue of National Savings Certificates and the introduction of new Defence Bonds. According to Ms Bowes, deposits into National Savings rose from £509m to £1.98bn between 1939 and 1946.

Dennis Hall, chief executive of Yellowtail Financial Planning, said: “I’m not yet seeing NS&I as the new war bond, though interestingly the term war bond (but obviously called something else) has cropped up as something the government may want to issue to find a long-term way of managing this debt.

“At these interest rates, issuing long-term debt and then praying for inflation will help solve the government’s debt problem.”

A spokesman for NS&I did not comment on the Treasury’s financing needs or the Covid-19 response, but stated: “We review the rates on all of our products regularly and recommend changes to HM Treasury when we believe they are appropriate, to ensure we continue to balance the interests of our savers, taxpayers and the stability of the broader financial services sector.”

But that question of stability is what investors want now, as Rachel Springall, finance specialist for Moneyfacts, commented: “Savers may feel they have nowhere to turn to right now, so NS&I as a government-backed brand could be a trusted safe haven to invest their cash.

“NS&I’s U-turn [on] savings rates was a positive move to support savers during the coronavirus pandemic, but fundamentally raising more deposits could aid the economic crisis by providing more spending money to the government.”

Employing similar language to those echoing the War Bonds of the 20th century, Ms Springall added: “During both the first and second world war, the National Savings Movement was seen as instrumental for raising funds to help the war effort. Now as the country is at war with the coronavirus pandemic, the funds NS&I could raise from savers may prove a vital injection.”

Cash is the new king?

Aside from any sense of altruism — and very few people will be putting money into NS&I just because it can help the government meet its fiscal pledges — Ms Bowes said that, in the case of NS&I, cancelling the scheduled cuts to the variable rate on-sale accounts was a “step in the right direction” to give savers some certainty.