NS&I storms savings with 3.95% bond

By ALAN O'SULLIVAN
Updated: 12:46 EST, 6 November 2009

National Savings & Investments has taken the bond market by storm after launching an attractive range of fixed-rate accounts, including a best-buy one-year offer at 3.95%.

Cash call: NS&I will attract quite a bit of interest with its new bonds.

The new launches are only available from the Government-backed savings provider directly and mark its recent decision to stop offering such products via the Post Office, which has its own growth bond.

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Available from today, these are NS&I's first market-leading launches since it was accused of distorting the savings market by using its Government-backed status to attract a flood of savers in 2008, soon after the fall of Northern Rock.

Since then it has reined in its interest rates to mediocre levels and has declined to join in the battle for savers cash in a meaningful way, apart from recently raising the rate on its Direct Isa.

It now has launched a best-buy one-year growth bond at 3.95%, ahead of the next best offer from Saga at 3.75%.

Its other growth bond launches include a two-year offer at 4.25%, three-year at 4.4% and five-year at 4.6%, all just shy of the best deals on the market.

It has also launched a series of income bonds: these include a best-buy one-year bond at 3.85%, followed by an attractive two-year offering at 4.15%, three-year at 4.3% and five-year at 4.5%.

NS&I is trumped in the three-year market by the Post Office's existing growth bond, however, which offers 4.55% to NS&I's 4.4%.

The majority of these new bonds are about 3% higher than previous issues and signify a renewed effort by NS&I to attract High Street savers' money. It said last year that it would cut back on its marketing and savings rates in order to encourage savers to divert money back into the foundering banking and building society sectors.

However, a spokeswoman for NS&I said the high rates are a result of cost savings from no longer offering the products via the Post Office. She said: 'Our ability to offer better rates comes from the cost savings of offering these directly instead of through the Post Office.'

The rates trump many building societies keen to attract funds from the High Street, although NS&I is still bettered by Yorkshire and Barnsley building societies on five- and three-year bonds respectively.

The new launches have a minimum investment of £500 and a maximum of £2m. All funds deposited with NS&I receive 100% savings compensation coverage from the Government compared to the £50,000 coverage offered by the majority of banks.

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