First announced by Chancellor Phillip Hammond last autumn, the National Savings and Investments (NS&I) Investment Guaranteed Growth Bond is a three-year savings account paying a rate of 2.2 per cent AER. The product is available from today (11 April 2017).
You can deposit between £100 and £3,000 per person and interest is paid once a year on the anniversary of the account opening. It is available to anyone aged over 16, and joint accounts are also permitted.
However, the account is available online only. Plus, if you withdraw your money before the three years is up, you’ll forfeit 90 days’ worth of interest.
Andrew Hagger of comparison service Moneycomms says the launch will do little to boost the spirits of savers. 'The government knew it had to do something to appease savers but this is little more than a token gesture,' he says.
'The chance to earn 2.2 per cent in today’s depressed savings market may look appealing at first glance but it’s not that generous in the scheme of things.
'The bond will no doubt prove popular as savers are desperate to grasp any opportunity in the current low rate climate; particularly as the option of high interest current accounts are no longer really viable since the banks slashed the rates on offer.'
How does the Bond stack up?
The NS&I Bond offers the highest rate in the three-year savings market. But the difference between products is minimal. If you max out your full £3,000 limit when you open the account you’ll earn £66 in interest over the first year. By the end of the three-year term you’ll have made £202.
The next best product on offer is Secure Trust Bank’s three-year fix, which pays 2 per cent until 2020. This would pay you £184 in interest over the same term on the same amount.
If you want to beat NS&I’s product then you’re best looking at current accounts and linked regular savers. The Nationwide FlexDirect account pays 5 per cent interest on balances up to £2,500 for the first year, but this drops to 1 per cent thereafter.
TSB pays 3 per cent interest on its Classic Plus current account, although this is only on balances up to £1,500. You will have to meet certain requirements though to get these accounts. See our current accounts roundup LINK for more information.
First Direct, HSBC, M&S Bank, Nationwide and Santander all offer regular savings accounts paying 5 per cent, but you need to have each bank’s current account to access this top rate. There are also limits to how much you can save in these accounts.
Another way to make the most from cash savings is to play current account ‘ping pong’, see Beat the banks with current account ping pong.
Are there other ways to achieve higher income?
Many invest in peer-to-peer lending for higher income. Alternatively, you could consider investing in the stock market, where you can get earn an income of 3 per cent from UK equity income funds. For our recommended funds list, visit the Moneywise First 50 Funds.
Both peer-to-peer lending and stock market investments are higher risk than savings and current accounts. So beware that you could end up losing some or all of your original investment.
This article was first published on our sister website, Moneywise.
Subscribe to Money Observer Magazine
Be the first to receive expert investment news and analysis of shares, funds, regions and strategies we expect to deliver top returns, plus free access to the digital issues on your desktop or via the Money Observer App.Subscribe now