Introducing the new NS&I bond – is that it?
Post by Mearns & Company in News
The Budget confirmed the rate on the new National Savings & Investments Bond.
2.2% is the fixed rate on the “welcome break for hard-pressed savers” which Mr Hammond confirmed in last month’s Budget. The new NS&I three year fixed rate bond is available from April for a period of 12 months. The maximum investment will be £3,000, although unlike its widely popular pre-election predecessor, it will be available to anyone aged 16 or over.
2.2% is a ‘market-leading’ rate, as the Chancellor promised in his Autumn Statement. At the time of writing, the best three year fixed rate on offer elsewhere was 1.9%. In the government’s accounts, the new bond is shown as a ‘spend’ item, with a total cost of £290 million. That sum reflects the fact that the Treasury could borrow money at a much lower interest rate elsewhere, and administrative cost from institutional investors.
While not the government’s fault, if you do invest, you may find that the return does not keep pace with inflation over the next three years – it is already below February’s 2.3% inflation rate. Your return could be even further below inflation if you have to pay tax on the interest because you have exhausted your personal savings allowance.
For those with relatively modest amounts of savings, and who don’t wish to take any investment risk, this should still present an attractive offer. However, for those with larger amounts of capital who are prepared to take some risk to stave off the long-term effects of inflation, there could be better options.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. The purpose of this blog is to provide generic and technical guidance and should not be interpreted as a personal recommendation.