National Savings and Investments (NS&I) has increased interest rates across its fixed-term savings accounts, defying the broader market trend of rate reductions.
The Treasury-backed savings provider, which helps fund government projects, announced rises of up to 0.31 percentage points, offering the biggest boost to those locking in funds for five years.
The move comes just a day after the Bank of England decided to hold interest rates at 4%, with economists predicting a potential rate cut after the upcoming budget.
While most banks and building societies have been lowering their savings rates in response, NS&I’s decision signals a deliberate attempt to attract more deposits.
Rates on one-year guaranteed growth and income bonds have increased from 4.04% to 4.2%, while two-year bonds rose from 3.85% to 4.1%. The three-year option is now 4.16%, up from 3.88%, and the five-year bond has risen from 3.84% to 4.15%. These improved returns will apply to both new customers and existing savers who choose to renew their fixed-term investments.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said the rise runs counter to the rest of the savings market, which has been “trending downwards”. She added: “The fact NS&I has taken a step in the opposite direction is highly likely to be driven by a desire to get more money in through the door, to meet its funding targets.”
NS&I’s retail director, Andrew Westhead, said: “I’m pleased that we can offer increased interest rates on these fixed-term products, giving savers who want guaranteed returns a choice in how they invest, while continuing to benefit from the security of the 100% government guarantee.”
Any amount between £500 and £1 million can be invested in these bonds, though withdrawals are not permitted during the fixed term.
The rate increase comes amid reports that Chancellor Rachel Reeves is considering reducing the annual cash Isa allowance from £20,000 to £12,000 following Treasury discussions.
Despite the boost, Coles noted that NS&I’s offers still lag behind the market leaders. “It’s much more tempting than it was – but that’s a fairly low bar,” she said, adding that while the government guarantee may appeal to savers with larger balances, “the rises aren’t enough to get any of these deals into the top 10 accounts across any period.”
Other banks continue to offer more competitive rates, with LHV Bank paying 4.46% on balances up to £1 million, JN Bank offering 4.39% on two- and three-year bonds, and Chetwood Bank providing a five-year fixed account at 4.35%.
