National Savings and Investments (NS&I), a prominent UK savings institution, has announced a reduction in interest rates for British Savings Bonds merely five weeks after their initial offering. This decision, effective from Wednesday, impacts all bond types, with rates decreasing by up to 0.35 percentage points.
Dax Harkins, NS&I Chief Executive, stated:
"Our 2, 3 and 5-year fixed-term bonds continue to offer savers increased choice, a fair return and longer-term security in a changing market. These changes ensure our interest rates are set at an appropriate position and continue to balance the interests of savers, taxpayers and the stability of the broader financial services sector."
The rate adjustment affects both Guaranteed Growth Bonds and Guaranteed Income Bonds. For instance, two-year Guaranteed Growth Bonds will now offer 4.25% interest, down from the previous 4.6%. This change is expected to impact investor returns significantly.
British Savings Bonds, introduced during the 2024 Budget by then-Chancellor Jeremy Hunt, provide fixed interest rates for periods ranging from two to five years on investments between £500 and £1 million. Unlike standard bank deposits, which are protected up to £85,000 by the Financial Services Compensation Scheme, these bonds offer full protection backed by the Treasury.
NS&I, founded in 1861 as the Post Office Savings Bank and rebranded in 2002, has a long history of providing savings products to UK residents. As one of the largest savings organizations in the country, it serves over 24 million customers and plays a crucial role in financing part of the UK's national debt.
Financial experts have expressed disappointment with the rate reduction. Anna Bowes of Savings Champion commented on the impact, particularly for those with maturing Guaranteed Growth Bonds who had anticipated higher rates. James Blower from Savings Guru described the cut as "oddly timed" and suggested that savers could find better value elsewhere in the market.
As of March 31, 2024, NS&I reported approximately 477,000 growth bonds and 81,000 income bonds, with balances of £21.42 billion and £7.45 billion respectively. These figures underscore the significant role NS&I plays in the UK savings landscape.
The organization's decision to reduce rates comes amid expectations that the Bank of England may cut official interest rates before the end of 2024. This move by NS&I aims to balance the interests of savers, taxpayers, and the broader financial sector.
Despite the rate reduction, NS&I continues to offer a range of savings products, including its popular Premium Bonds introduced in 1956. The organization's commitment to providing secure savings options, backed by over 150 years of experience, remains unchanged.