Boost for savers as NS&I increases interest rates on its Direct Saver and Income Bonds

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Martin Lewis offers advice on reinvesting in NS&I bonds

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The Government-backed savings provider has increased interest rates on its Direct Saver and Income Bonds to 0.5 percent. This represents a rise of 15 basis points.

The new interest rates ensure that NS&I products are priced in line with the broader savings sector.

Interest paid on both accounts will rise from 0.35 percent gross Annual Equivalent Rate (AER) to 0.5 percent gross AER.

The change came into effect on February 10, 2022.

Roughly 650,000 savers stand to benefit from the new rates, according to data from NS&I.

Rachel Springall, a Finance Expert at Moneyfacts told the decision to increase rates on the Direct Saver and Income Bonds to 0.5 percent is “positive” but warned, in the present market, “a better return” can be found elsewhere.

She said: “There are a variety of different easy access accounts that pay 0.2 percent or more above NS&I’s 0.5 percent interest rate – many of which are challenger banks.

“NS&I previously increased interest rates on these two accounts to 0.35 percent in December 2021, which represented a 0.25 percent rise – more than the base rate rise of 0.15 percent at the time.”

NS&I is attempting to meet its annual funding target for the 2021 to 2022 financial year, which is set at £6billion.

Ms Springall added: “NS&I has targets to reach, and increasing rates is a way for them to entice savers, but they also tend to react to base rate changes too.

“With this in mind, it’s always wise for existing customers to review their account to the changing market.”

Between April 1, 2021 and September 30, 2021, NS&I savers deposited a net £600million.

This amounts to a mere 10 percent of its annual net financing target.

This means that NS&I is currently below its target which it is set by the Treasury.

The end of the financial year is set for March 31, 2022.

NS&I’s new rates could be particularly attractive to savers who are looking to invest a large amount of money.

This is because they can hold up to £1million in Income Bonds and £2million in the Direct Saver, all of which is protected by the Treasury.

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This is much more than the £85,000 Financial Services Compensation Scheme (FSCS) protection afforded per individual by most banks and building societies.

The Financial Services Compensation Scheme provides protection for customers of failed financial services firms.

A Direct Saver is an easy access savings account that can be managed online and pays interest yearly.

Similarly, Income Bonds offer a type of investment that pays interest regularly to the holder.

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