Government Bonds  

NS&I raises interest rates to 0.5 per cent

NS&I raises interest rates to 0.5 per cent

NS&I has increased the interest rates on its direct saver and income bonds by 15 basis points.

As of today (February 10), the interest rate on both direct saver and income bonds is increasing from 0.35 per cent to 0.50 per cent.

This is the second interest rate increase for these products in recent months as they were increased from 0.15 per cent to 0.35 per cent in December. 

Ian Ackerley, chief executive of NS&I, said: “The new interest rates will ensure that our products are priced in line with the broader savings sector. 

“The increase will also help us to meet our annual net financing target for 2021-22 of £6bn, in a range of £3bn to £9bn.”

But Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, has said while it was a welcome boost, these rates still fell short of the top rates being offered on the market.

She said it was “hugely positive” to see NS&I boosting rates on these products, but the best easy access savings rate available was currently 0.71 per cent so savvy savers willing to shop around can still find better places to stash their cash.

“They may prove tempting for those with very large amounts of savings who welcome the extra protection offered by Treasury,” she said. “You can hold up to £1mn in income bonds and £2mn in the direct saver, and it’s all protected by the Treasury.

“It’s worth saying though that the first £85,000 held with any institution is protected by the Financial Services Compensation Scheme so this will cover most people.”

Last week, the Bank of England raised the base interest rate to 0.5 per cent, the second increase in as many months.

The monetary policy committee voted 5-4 to increase the rate by 0.25 percentage points, the four members voting against it asked for a hike of 0.5 percentage points to 0.75 per cent. 

The hike was expected by analysts, as the central bank had not made any moves to quell market speculation of a 0.25 percentage point rise.

Morrisey said it was good news to see savings rates starting to respond to recent Bank of England interest rate rises. 

“While still far from market leading, they are a vast improvement on rates that went as low as 0.01 per cent  for some of its products and sent customers rushing to the exit.

“These mega-low rates meant NS&I undershot its fundraising target in 2020-21 by quite some way and given that in Q2 it had only raised 0.6bn of its £6bn target for this year it’s clear strong action needed to be taken. Whether today’s boost is enough to tempt savers back and close this yawning gap remains to be seen.”

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