One of the main reasons for NS&I’s popularity is that it is backed by the government, which provides savers with peace of mind that 100% of their money is protected.
Savings held with other providers are protected up to a maximum of £85,000 (as of January 2017) per person (and per banking institution) thanks to the Financial Services Compensation Scheme (FSCS), whereas with NS&I there is no upper limit.
NS&I offers several different kinds of savings accounts, some of which are tax-free, as well as Premium Bonds, which rather than paying interest, give savers with the opportunity to win tax-free monthly prizes.
The Direct Saver account can be operated either online or by phone, and gives savers with easy access to their money. However, although reasonable, the rate paid on this account is not as competitive as the returns offered by comparable accounts.
The Investment Account is designed for savers who prefer to manage their money by post, but again it is possible to find much better returns elsewhere. Returns from both the Direct Saver and the Investment Account are taxable. However, interest is paid before tax is deducted, so savers must pay any tax owed to HMRC.
NS&I’s Guaranteed Growth Bonds are fixed rate accounts with a choice of terms available, depending on how long you want to invest. This type of account is likely to suit savers who want to know exactly what they’ll receive at the end, and therefore don’t want a variable account.
There are no issues of Guaranteed Growth Bond on sale at the moment, but this could change, so it’s worth regularly checking to for new launches.
As their name suggests, NS&I’s Income Bonds pay savers a monthly income. You can cash the bonds in whenever you want, without giving notice or paying a penalty.
Income Bonds can be opened with a minimum investment of £500, and the maximum amount that can be invested is £1m. You must be aged at least 16 to invest.
NS&I has previously offered Pensioner Bonds for those aged 65 or over, although these are currently no longer on sale. The bonds could be opened with a minimum investment of £500, and the maximum that could be invested in each bond was £10,000. The bonds can be operated online, by phone or by post. .
Premium bonds, which NS&I is perhaps most renowned for, offer savers the opportunity to win one of two £1m monthly jackpots as well as over a million other prizes ranging in value from £25 up to £100,000.
As a saver, you won’t receive any interest – but the prizes you win will be tax-free. You can invest a minimum of £100 in Premium Bonds and a maximum of £50,000 (this increased from £40,000 in 2015).
It’s worth bearing in mind that the odds of a £1 bond winning any amount in any month is one-in-30,000. And if aren’t lucky, inflation will erode the purchasing power of your money over time.
You must be at least 16 to invest in Premium Bonds, although parents or grandparents can invest in them on behalf of children who are under the age of 16.
The Direct ISA from NS&I pays a variable rate of interest, and returns are tax-free. The account can be operated online and by telephone, and you can make withdrawals whenever you want. In the current 2017/2018 tax year you can invest up to £20,000 into an ISA – and this can be entirely held in cash.
NS&I offers Children’s Bonds for parents wanting to save on behalf of their children.
The minimum you can invest in a Children’s Bond is £25, and the maximum is £3,000 per child per issue. Bonds last for five years, and can be rolled over into the next bond issue at maturity, or can be cashed in. Each bond will mature for good once it reaches its first five-year anniversary on or after the child’s 16th birthday.
If you are considering a Children’s Bond, make sure you can afford to tie up your money for the full five-year term as there is a penalty equivalent to 90 days’ interest if you want to cash it in early.
Index-linked savings certificates
This kind of savings account has returns which are linked to inflation, and as a result have proved hugely popular in recent years as the cost of living has risen. But there are no issues on general sale at the moment.
Accounts, when they are available, run for either two or five years, and savers earn interest plus inflation, as measured by the Retail Prices Index (RPI). For example, if the account paid an interest rate of 0.25% plus inflation, and inflation was at 2%, you’d earn 2.25%.