National Savings & Investments has taken the scissors to its fixed-rate bonds, trimming returns for anyone signing up now.
That might sound discouraging at first glance, but I wouldn’t rush to dismiss them.
Even after the cut, these deals still stack up better than many alternatives currently on offer.
The one-year Guaranteed Income Bond, which pays interest monthly rather than making you wait, has slipped from 4.13 per cent to a flat 4 per cent.
Its sister product, the one-year Guaranteed Growth Bond, now pays 4.07 per cent instead of 4.2 per cent.
In today’s market, locking in just over 4 per cent for a year still feels like a sensible move.
The Catch With Fixing Your Money Away
Of course, fixed-rate bonds always come with strings attached.
Once your cash is locked in, it stays there until the term ends.
You can’t dip in early, even if rates unexpectedly shoot up elsewhere.
That scenario doesn’t look especially likely right now, but it’s still something worth keeping in mind before you commit.
Over recent weeks, providers across the board have quietly been lowering rates.
NS&I had been hovering near the top of the best-buy tables, but that position was always going to attract attention.
Other Banks Are Following Suit
It didn’t take long for competitors to respond.
Within hours of NS&I’s announcement, Virgin Money shaved its own one-year fixed bond, dropping it from 4.11 per cent to 4.01 per cent for new customers.
Right now, the standout one-year deal comes from Union Bank of India UK at 4.33 per cent, with Chetwood Bank close behind at 4.26 per cent.
Still, the gap between the best and the rest is narrowing, and that trend looks set to continue.
Longer Bonds: Decent Rates, But Watch the Tax Trap
NS&I has also reduced rates on its longer-term bonds.
Two-year Guaranteed Growth Bonds now pay 3.98 per cent, three-year bonds 4.02 per cent, and five-year bonds 4.05 per cent.
The income versions sit slightly lower, at 3.91 per cent, 3.95 per cent and 3.98 per cent respectively.
Before you’re tempted by anything longer than a year, pause and think about tax.
There’s a quirk with NS&I products that can catch people out: you don’t get access to the interest until the bond matures.
That means all the interest earned over the full term lands in your account at once and counts towards your personal savings allowance in that single tax year.
Basic-rate taxpayers can earn £1,000 of interest tax-free each year, while higher-rate taxpayers only get £500. Go over that, and the taxman will want a slice.
Why NS&I Felt Able to Cut Rates
The timing of the cut isn’t surprising. Fresh figures from the Bank of England show NS&I pulled in £2.45 billion in November alone — its strongest month in more than two years.
That takes its total for the financial year so far to £7.57 billion, against a full-year target of £13 billion.
If money kept flowing in at the same pace, NS&I would comfortably overshoot that goal.
When demand is that strong, there’s little incentive to keep rates at the very top.
A Silver Lining for Existing Savers
There is some good news, though. Anyone whose one-year Guaranteed Growth or Income Bond is maturing now will still be better off than they would have been a year ago.
Back then, the one-year Growth Bond paid 3.95 per cent, while the Income version offered 3.88 per cent.
In other words, recent savers have enjoyed a stronger year than many before them.
Why Cash ISAs Still Matter
Alongside bonds, cash ISAs remain a crucial tool for savers — especially as more people are dragged into the 40 per cent tax bracket.
The big advantage is simple: any interest you earn is completely tax-free, allowing your savings to grow without being nibbled away.
Savings specialists continue to comb the market for the strongest ISA deals, focusing not just on headline rates but also on accounts without awkward conditions.
Easy-access options, fixed-rate ISAs and Lifetime ISAs all have their place, depending on how flexible you need your money to be and how long you’re happy to lock it away.
The Bottom Line
Yes, NS&I has trimmed its rates, and yes, the golden days of eye-catching savings returns appear to be fading.
But a one-year fix paying around 4 per cent is still nothing to sniff at.
As always, the best choice depends on your tax position, your need for access, and how comfortable you are tying your money up.
For many savers, NS&I remains very much part of the conversation.
Share on Facebook «||» Share on Twitter «||» Share on Reddit «||» Share on LinkedIn