NS&I hikes Guaranteed Growth & Income Bond rates: should you apply?

The one-year bonds are now comfortably the best on the market, but the longer-term versions still lag behind rival offerings.

National Savings & Investments (NS&I) has dramatically hiked the rates on its Guaranteed Growth and Guaranteed Income Bonds.

Both products will now pay up to 6.2% AER depending on the term you choose, up from 5% before.

NS&I says it is the highest ever rate it has offered on these products since they were first launched back in 2008.

The one-year version of these bonds are open to everyone, while the two-, three- and five-year options are only available to existing customers looking to renew when their bond matures. 

So how do the NS&I bonds compare to the best buy fixed-rate savings out there? 

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How do the Guaranteed Growth and Guaranteed Income Bonds compare?

Before we jump in we should point out how the two bonds differ.

As the name implies, Income Bonds pay interest monthly, while the Growth bonds pay interest as a lump sum at the point of maturity.

Now that's out the way, let's start by looking at the one-year bonds as these are open to anyone.

As mentioned, you can now get a rate of 6.2% with NS&I. This is comfortably above the next best one-year rate of 6%, which you can get from Investec and Close Brothers.

Throw in the fact that NS&I guarantees 100% of deposits up to £1 million, while traditional accounts are only covered up to £85,000, and it's clear the products are going to be especially popular among savers with larger pots.

The fact that NS&I now has a genuinely table-topping savings product represents a real change of tack for the organisatioin.

Normally, it aims to be a little below the very best products so as to avoid attracting too much cash.

However, the state-backed institution has been set a hefty financing target of £7.5 billion for the current financial year and it has clearly decided a change of approach is needed if it's to reach it.

Rates on longer-term bonds are less appealing 

Given that the two-, three- and five-year versions of the Income & Growth bonds are only open to existing savers, NS&I has been less generous with these rates and can be beaten by rival accounts. 

For example, the two-year NS&I bonds now pay a rate of 5.8%. However, both Close Brothers and Ford Money will pay you a rate of 6.05% on their two-year products.

Next, the three-year NS&I bonds pay 5.8%, slightly lower than the 5.96% you can get with Oaknorth Bank.

Finally, the five-year NS&I bonds now offer a rate of 5.5%, while Tandem Bank pays 5.85% on its equivalent fixed-rate account.

Of course, many savers might choose to stick with NS&I given the aforementioned higher savings thresholds and additional security on offer. 

But if maximising your rate is all you care about, then you'll be better off ditching NS&I when your current bonds mature.