The government has made good on its Autumn Statement pledge to introduce a new ‘market-leading’ bond through National Savings & Investments (NS&I) – it’s just a shame the market is still in the doldrums. The Investment Guaranteed Growth Bond will pay 2.2 per cent to savers depositing between £100 and £3,000.
Launching the NS&I bond on Tuesday, economic secretary to the Treasury Simon Kirby said: 'With its market-leading rate of 2.2 per cent, the Investment Bond will provide a valuable boost for savers who have been affected by low interest rates.' The Treasury also pointed out that the average three-year fixed-term product has a rate of 1.24 per cent so 'the new offering is significantly higher than others currently on the market'.
While this is true, earning a maximum return of just £204.49 for lending the government your cash for three years is hardly a reward to get excited about. It doesn’t even beat inflation, which was 2.3 per cent in March.
Personal finance expert Andrew Hagger from Moneycomms.co.uk has dismissed the new bond as 'little more than a token gesture' to appease savers. 'The chance to earn 2.2 per cent in today’s depressed savings market may look appealing at first glance but it’s not that generous in the scheme of things. With the maximum balance set at just £3,000 and having to lock your cash away for three years it’s scant reward for savers who have had to endure rock bottom rates at the expense of borrowers for far too long.
'You can already earn 2 per cent with Secure Trust, 1.9 per cent with Vanquis Bank and 1.87 per cent with Charter Savings Bank (all Financial Services Compensation Scheme covered) in the current savings market so the much heralded 2.2 per cent rate from NS&I doesn’t deliver a great deal extra when you crunch the numbers. For example, compared with the 2 per cent best buy deal from Secure Trust the NS&I Bond will deliver a mere £6 extra per year in interest.'
Anna Bowes, director at independent savings advice site Savingschampion.co.uk, has also criticised the new bond. 'Savers can only apply for the bond online, which once again means that those who are unable or uncomfortable to deposit funds in this way, will miss out on the best rates.'
Analysis by Savingschampion.co.uk found that more than a quarter of all live fixed-rate bonds are online only, as of the end of March. And on Tuesday, all of the top five one, two, three and four-year fixed-rate bonds were online only.
Bowes added: 'The changing trends and rise of the challenger banks, over the last couple of years in particular, has seen an ever-increasing number of online only accounts as many providers favour this distribution channel. And because many of these challengers are driving much of the competition in the savings market, this means that those who either don’t have access to or prefer not to use online savings accounts, could be missing out on the very best rates available, at a time when every penny counts.
'Many savers may be particularly disappointed that state-owned savings bank National Savings & Investments, which once offered its products via the Post Office network, is now firmly moving with the times and restricting this account to internet users only. This could cut off access for those savers most in need of improved rates, including elderly pensioners who do not wish to use the internet.'
Despite the criticism of the NS&I bond, Adrian Lowcock, investment director at Architas, said: 'It does offer a market-leading yield with the best security of any savings product and may suit those who don’t want to take any risk or believe inflation will fall quickly once it has peaked.'
It really is slim pickings out there in the savings world. In fact, only one fixed-rate bond available nationwide currently trumps inflation, according to Savingschampion.co.uk – a five-year bond from Ikano Bank paying 2.35 per cent on deposits of between £1,000 and £1 million.
Laura Whitcombe is knowledge and product editor at ThisisMoney.co.uk.