NS&I announces interest rate cuts on a range of fixed-term products - are you affected?

Guaranteed Growth Bonds are a lump sum investment that earns a fixed rate of interest over a set period of time. Interest is added to the bond on each anniversary of the investment.

Guaranteed Income Bonds are also a lump sum investment and they pay out a monthly income at a fixed rate of interest over a set period of time.

The changes to its British Savings Bonds will ensure its interest rates are positioned appropriately in the wider market.

The move will also help to balance the interests of savers, taxpayers, and the broader financial services sector.

Savers will now see lower returns on these fixed-term products compared to the rates offered since August 6, 2024.

These reductions range from 0.20 to 0.35 percentage points, depending on the product and term length.

From Wednesd, the new interest rates for British Savings Bonds are as follows:

• For the 2-year term, the Growth option offers 4.25 per cent gross/AER, whilst the Income option provides 4.17 per cent gross / 4.25 per cent AER
• The 3-year term sees rates of four per cent gross/AER for Growth and 3.93 per cent gross / four per cent AER for Income
• For the 5-year term, Growth bonds offer 3.90 per cent gross/AER, with Income bonds at 3.83 per cent gross / 3.90 per cent AER

NS&I Chief Executive, Dax Harkins, commented on the changes: "Our 2-, 3- and 5-year fixed-term Bonds continue to offer savers increased choice, a fair return and longer-term security in a changing market.

“These changes ensure our interest rates are set at an appropriate position and continue to balance the interests of savers, taxpayers and the stability of the broader financial services sector."

NS&I ­also cut the high paying 5.15 per cent interest rate it was offering to more than a quarter of a million savers on Friday.

The bond was only on sale for five weeks and was available to the 225,000 savers who snapped up Guaranteed Growth or Income Bonds last summer.

They were offering 5.15 per cent to customers who fixed for one year or 5.03 per cent for those who preferred monthly interest, however the rate has now been cut 4.75 per cent for those yet to roll over their savings into another one-year Guaranteed Growth Bond, or 4.65 per cent for those who want monthly income.

Product changes

• Previous interest rate from August 6, 2024
• Interest rate from September 11, 2024

Guaranteed Growth Bonds

(2-year)

• 4.60 per cent gross/AER
• 4.25 per cent gross/AER

Guaranteed Growth Bonds

(3-year)

• 4.35 per cent gross/AER
• Four per cent gross/AER

Guaranteed Growth Bonds

(5-year)

• 4.10 per cent gross/AER
• 3.90 per cent gross/AER

Guaranteed Income Bonds

(2-year)

• 4.50 per cent gross / 4.60 per cent AER
• 4.17 per cent gross / 4.25 per cent AER

Guaranteed Income Bonds

(3-year)

• 4.26 per cent gross / 4.35 per cent AER
• 3.93 per cent gross / Four per cent AER

Guaranteed Income Bonds

(5-year)

• 4.02 per cent gross / 4.10 per cent AER
• 3.83 per cent gross / 3.90 per cent AER

Mark Hicks, head of active savings, Hargreaves Lansdown, said: “It was always a matter of when these cuts were going to come, rather than if.

“However, the fact NS&I is cutting rates today demonstrates that it’s not desperately keen to fill its boots, so it isn’t going to be comfortable with paying over the odds. This doesn’t bode well for Premium Bond savers.

“These fixed-rate cuts mirror the falls that we’ve seen in the rest of the saving market.

“While rates have headed downhill, the NS&I has shifted gear in order to stay in the middle of the road. Last year, NS&I distorted the market with a market-leading one-year rate, but these moves imply that NS&I isn’t in any rush to do the same again. It’s not desperate to raise significant funds by paying more than it needs to.”