New 2-year and 5-year fixed British Savings Bonds are now available to buy via the NS&I website. The 2-year fixed bonds come with a 4.60% AER interest rate, while the 5-year fixed bonds come with a 4.10% AER interest rate. The bonds cost £500 each and savers can buy up to £1,000,000 worth of bonds if they're interested. This is the first time NS&I has offered 2-year and 5-year bonds since 2009.
The news comes after NS&I launched the 3-year fixed British Savings Bonds back in April this year. At the time, a 3-year bond allowed savers to earn a fixed interest of 4.15% AER on their savings. NS&I has now increased the interest on their 3-year fixed bond to 4.35% AER. Despite the increase, NS&I's British Savings Bonds still don't offer market-leading interest rates on savings.
The "middle-of-the-road" rates may be a result of a more cautious approach following the launch of NS&I's 1-year fixed rate bonds back in 2023. They came with a table-topping interest rate of 6.2% AER and sold out in just five weeks raising over £10 billion for the Treasury.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: "NS&I is going for a Goldilocks boost to the British Savings Bond. It wants to attract more cash to hit a slightly more generous fundraising target, but it doesn't want to go too far and bust the limit like last year. Middle-of-the-road rates on less popular savings accounts are a sensible solution."
How do the British Savings Bonds work?
There are two ways to earn interest via the British Savings Bonds. You can opt for the Guaranteed Income Bonds or the Guaranteed Growth Bonds. With the income bonds, you will earn a fixed monthly income for the bond term (whether that's 2, 3, or 5 years). The interest won't be added to your savings but will instead be paid out to you every month. With guaranteed income bonds, you will earn interest over the bond term but will only receive the interest you've accrued at the end of the fixed period.
In both cases, you cannot access your savings until after your bond term ends. As with other NS&I products, all your savings will be backed by HM Treasury. This is different from FSCS protected which usually only protects your deposits up to £85,000. As such, particularly risk-averse savers may prefer to opt for a lower interest rate if it means their deposits will be fully protected.
Are the British Savings Bonds taxed?
Regardless of which option you select, you may be liable for tax on the interest you earn. With the growth bonds, you will only be liable for tax in the financial year when they mature, assuming you go over your personal savings allowance. With the income bonds, you will be liable for tax in every year that you receive interest payments, again, assuming you go over your personal savings allowance. If you want to find out more, we discuss what your personal savings allowance is and how to boost it by £5,000 in our article on the topic.
How do the new British Savings Bonds compare to similar products on the market?
There are better fixed-rate bond deals on the market. Some 2-year fixed-rate bonds currently offer rates of up to 4.95% AER, while some five-year bonds come with interest rates of up to 4.51% AER. In contrast, the 2-year fixed British Savings Bonds come with interest rates of 4.60% AER, while the 5-year fixed British Savings Bonds come with interest rates of 4.10% AER.
While the new British Savings Bonds aren't market-leading, they are not far off and they offer additional financial protection via the Treasury which could sway some savers. In addition, the recent base rate cut means that providers are likely to cut savings rates in the coming months, meaning savers hoping to lock in a decent rate may need to act quickly.
That being said, if you're unsure wheether the British Savings Bonds are right for you, our savings tables highlight the best rates on the market across a number of different products to help you explore your options.
