NS&I boosts savings rates above 5% – are the British Savings Bonds worth it?

Savers can get a better return with NS&I as the savings provider has again upped interest rates on its British Savings Bonds.

You can now get a top rate of 5.17% but the deals won't be right for everyone.

Here, we look at who should consider the accounts and whether you can get a better deal elsewhere.

What are the new NS&I savings rates?

NS&I has launched new issues of its one, two, three and five-five-year fixed-term British Savings Bonds, which come in two options as Guaranteed Growth Bonds (GGB) or Guaranteed Income Bonds (GIB).

The Guaranteed Growth Bonds are a lump sum investment that earns a fixed rate of interest over a set period of time. Interest is paid when the bond matures.

And the Guaranteed Income Bonds instead pays out monthly income at a fixed rate of interest over a set period of time.

Under the new issues of GGBs, you can get a top rate of up to 5.17% if you lock money away for five years, or you'll get a rate of 5.1% if you you choose the three-year option, 5.07% with the the two-year option and 4.99% with the one-year bond.

The GICs pay slightly lower rates of 5.06% for five years, 4.99% for three years, 4.96% for two years and 4.88% for one year.

You can save from £500 up to £1 million in each British Savings Bond issue.

Andrew Westhead, NS&I Retail Director, said: “We’re pleased to be increasing interest rates across our 1, 2, 3, and 5-year British Savings Bonds, responding to changes in the wider market and giving savers the certainty of a guaranteed return for the duration of their chosen term.

“Alongside these improved rates, customers continue to benefit from the reassurance that all money invested with NS&I is 100% secure and backed by HM Treasury.

Are the British Growth Bonds a good deal?

The new rates make the NS&I British Growth Bonds more competitive but you can still make a better return on your cash elsewhere.

For example, if you're willing to lock your cash away for five years, you can get a rate of 5.34% with Close Brothers, or 5.25% with Aldermore.

And if you want to put away money for a shorter period of 12 months, you'd get a rate of 5.1% with thisbank.

Should you put money in a fixed-rate bond?

Locking away your money for a set period of time is one way of getting a better rate of interest on cash savings, especially when compared to leaving it in a current account or an easy access account.

Usually, you won't be able to access so your cash until the bond matures so you should only put away money that you know you are definitely not going to need.

It's always a good idea to have a cash lump sum in an easy access savings account that you can dip into in an emergency.

If you tie up for you money for a long period, such as five years, you risk missing out if market rates increase significantly over that time.

On the other hand, if rates fall your decision could pay off.

Are British Savings Bonds tax-free?

No, interest earned on British Savings Bonds is taxable.

This compares to NS&I's Premium Bonds, where prizes are tax-free.

However, many people have a Personal Savings Allowance, meaning they can earn some interest without paying tax.

The allowance depends on your tax band.

Basic-rate taxpayers can normally earn up to £1,000 of savings interest tax-free while higher-rate taxpayers can normally earn up to £500.

Additional-rate taxpayers don't receive a Personal Savings Allowance.

If you have savings elsewhere, remember that the interest you earn across your accounts can count towards your allowance.

If you're worried about paying tax on your savings, consider opening an ISA which will shelter savings from tax.