National Savings and Investments has dealt savers a punishing blow, slashing the amount they can stash in its popular Guaranteed Growth Bonds from £1million to just £10,000 per person.
The treasury-backed savings provider has kept the rates on the one and three-year fixed rate accounts the same at 1.5 and 1.9 per cent, respectively.
The generous deposit limit and the backing of the Government made the accounts a popular option for looking to squirrel away large amounts. The cut hits both wealthy savers and those looking for a safe place for lifetime savings.
While existing accounts won’t be affected, savers looking to open a new account may be better off looking elsewhere with far higher rates available from other providers.
Blow to savers: NS&I has dropped its maximum deposit limit from £1million to just £10,000
The provider, which has 25 million customers, says the reason for its change to deposit limits is to help meet its targets.
Jill Waters, retail director at NS&I, said: ‘Guaranteed Growth Bonds and Guaranteed Income Bonds have been on sale since 1 December 2017 and have proven extremely popular.
‘We are pleased to have given savers over six months to invest larger amounts, but these changes to the investment limit will allow us to manage demand in order to achieve our net financing target for 2018-19, while continuing to deliver positive value to taxpayers.’
Where can you find the best saving rates?
While rates are still disappointingly low, currently savers can find accounts paying far higher returns than NS&I is offering on This is Money’s independent best-buy savings tables.
The best rates are currently offered by challenger banks but they all come with Financial Services Compensation Scheme protection on deposits up to £85,000.
Last week saw challenger bank Atom launch a 2.05 per cent one-year fix, the highest rate glimpsed by savers since April 2016.
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Of course, NS&I only offer one and three-year fixed rates but savers can find different terms on the open market.
Alternatively easy-access accounts currently pay up to 1.3 per cent from french-owned RCI Bank
For more top-paying accounts, jump to our independent best-buy savings tables
A £10,000 deposit with Atom Bank would earn £55 more than the same amount held with NS&I’s equivalent one-year Guaranteed Growth Bond.
The account can be opened with just £50 and it allows monthly interest of 2.03 per cent APR.
Those preferring to lock cash away for three years can currently earn up to 2.31 per cent or 2.33 per cent with a Sharia compliant bank.
On a £10,000 deposit that’s worth £220 each year, compared to £195 paid by NS&I.
French-owned RCI Bank offers the 2.31 per cent rate across a three-year term. It is covered by the French equivalent of the FSCS scheme, the French Deposit Protection Scheme up to €100,000.
Gatehouse Bank is Sharia-compliant and therefore offers an expected profit rather than guaranteed interest but its rate is slightly higher than RCI at 2.33 per cent.
You can learn more about how Sharia Banks work by reading our guide which explains the other differences.
What about wealthier savers?
Those with a larger amount to save will need to spread their cash between multiple banks to ensure their cash is protected in full. If you are lucky to have a full £1million that means 12 different accounts.
The top 12 accounts in This is Money’s savings tables all pay rates of 1.8 per cent or higher on a one-year fix – beating NS&I by at least 0.3 percentage points.
The average rate from merging the lot is 1.86 per cent, which on £1million would earn £18,600 in interest in a year, before tax.
Remember though you must check whether institutions you choose are part of the same banking group and therefore share the same banking licence – for example, savings with BM Solutions and Halifax both sit under the Lloyds Banking Group licence and are therefore jointly covered up to the £85,000 FSCS limit.
Safest savings providers: Savings Champion has reviewed the ratings on the top comparable accounts to NS&I’s Guaranteed Growth Bond for those who don’t want to split their pot
Can you deposit large sums with one bank?
There is no failsafe way to do this unfortunately. There are no guarantees on your cash over £85,000 unless you spread it between banks.
But if you are considering stashing a large sum with one bank, there are precautions you can take to see how sage your money will be.
Anna Bowes, director of independent savings advice site Savings Champion, explains: ‘Many people will not have the time or patience to split their money, so will probably leave it with their trusted high street provider.
‘If this is likely, you can turn to the ratings agencies, such as Moody’s and Fitch, to get a better indication of the banks’ financial health, although it is no guarantee of the future security of your cash. The ratings agencies themselves are keen to point out that these ratings are just their opinions of the relative credit risk of fixed income obligations.’
Three-year bonds compared: Savings Champion reveals the best accounts from banks with top ratings from ratings agencies Moody’s and Fitch
Such ratings reflect both the likelihood of the bank defaulting and any financial loss suffered in this event.
It’s also worth bearing in mind that if you decide to use a provider with a minimum A rating and leave all your savings with them, you could miss out on thousands of pounds if you don’t also consider the rate on offer.
For example, if you deposit £500,000 into a 12-month fixed rate bond with Santander you would earn just 0.5 per cent or £2,500 in gross interest over 12 months.
But if you choose a more competitive rate with Close Brothers, you could earn 1.8 per cent or £9,000 gross over 12 months.
For those happy to consider a Sharia account, there is one A-rated provider – Al Rayan – offering slightly better rates.
For example, over 12 months the expected profit rate is 1.85 per cent gross or 1.86 per cent EPR, so on £500,000 your return could be £9,300 before tax.
However, it is important to understand that rather than a fixed rate of interest, the return is an expected profit rate, so is not guaranteed.
What should I do with my pensioner bond savings?
Pensioner bonds were offered to older savers by the Government three years ago as a consolation for low interest rates.
They offered a rate that could not be beaten elsewhere over one and three years, at 2.8 per cent and 4 per cent, respectively.
The three-year bonds were due to mature between 15 January and 15 May, depending on when people took one out.
If you have done nothing with the money you saved into a pensioner bond, savings will have been rolled into an NS&I standard Guaranteed Growth Bond for three years on a reduced 2.2 per cent interest rate.
But importantly you get 30 days after entering this deal to cancel it without penalty, so it is possible to move elsewhere if you can find a better rate.
After that initial window, 90 days’ worth of interest will be deducted on any sum you cash in before the deal expires.
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