NS&I cuts rates on British Savings Bonds and Junior ISA by up to 0.45%

Following the cuts, the bonds and ISA will be between 0.5% and 0.6% off the best equivalent savings deals on the market.

NS&I has announced a raft of rate cuts to its savings products – just three months after hiking many of them.

The rates on its two-, three- and five-year British Savings Bonds will fall by between 0.14% and 0.22% for new and maturing bond savers, while the rate on its Junior Cash ISA will drop 0.45%.

The one-year version of the British bonds will remain unchanged at its current rate of 4.05% AER.

The cuts undo much of the hikes to its savings bonds, which were announced in April this year.

NS&I said it has made the reductions "in response to changes in the wider market" – referencing the fact that most savings rates are falling as a result of the ongoing Base Rate cuts.  

All the rate changes are summarised in the table below.

Note that the British bond changes apply immediately, while the ISA change will apply from 18 July.

In case you aren't familiar with British bonds, they come in two forms: an Income Bond that pays interest monthly and a Growth Bond that accumulates over the term.

Manage all your savings accounts in one place with Raisin, the simple savings service

*Rate will only change on 18 July

How the new rates compare to the wider market

NS&I has to tread a fine line between providing attractive accounts that bring in money the Government can borrow and not dominating the savings market.

As a result, the bonds are some way off the absolute best rates on the market.

Well get to the comparison in a minute, but it's worth stressing that interest on British Savings Bonds is taxable just like normal fixed-rate deals, so this is a like-for-like comparison.

Looking at the one-year bond market, the best rates out there, from Marcus by Goldman Sachs, pays a rate of 4.55%.

That’s 0.5% above the equivalent British Savings Bond.

On a £20,000 savings pot, you’d be missing out on £100 interest by opting for the NS&I bond instead of the market leader.

And the gap gets even wider on the longer-term deals – where the impact of a lower rate will be more keenly felt in terms of lost interest – with rates between 0.54% and 0.63% higher on the bestbuy fixed-rate deals. 

Similarly, when the new, lower rate of 3.55% kicks in on the NS&I Junior ISA, it will be 0.6% lower than the best rate currently available on the market (from Loughborough Building Society).

Of course, saving with NS&I does come with the added security of being Government-backed, whereas banks will only protect the first £85,000 should they go bust (potentially rising to £110,000 later this year).

For the small number of savers looking to set aside huge sums without wanting the hassle of maintaining multiple pots, the NS&I bonds may well appeal.

However, as we pointed out earlier, they would be missing out on a significant chunk of interest by doing so.

Manage all your savings accounts in one place with Raisin, the simple savings service

Market commentary: what the analysts say

Commenting on the rate cuts, Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “These new rates show tougher times ahead for savers with interest rates starting to slide on these new savings bonds.

"We’ve also seen the first cut in two years to NS&I’s Junior ISA with rates sitting at 3.55% from 18 July.

"The good news is that savers can still get more for their savings elsewhere.

"The latest data from Moneyfacts shows interest rates of up to 4.43% on two-year fixed bonds and up to 4.42% for those willing to lock money away for three years.

"If you are in the market for a five-year savings bond, the data shows you can still get up to 4.47% so if you are willing to do your homework you can get far more for your money.

"However, there remains strong appeal to these products, and they will remain popular with savers with large amounts of savings.

"You can put up to £1 million into NS&I fixed rate bonds and it’s all 100% guaranteed by the Government.

"It means they don’t have to spread their money between a number of savings accounts to benefit from multiple FSCS savings limits and can keep an eye on it all in one place.

There are other options out there for people worried about this.

"A cash savings platform lets you spread your money between accounts from different banks and still be able to see them in one place - it’s a tempting prospect for people wanting to make their money work harder.”