New NS&I account pays just £6 more than rivals

National Savings & Investments’ three-year bond launched this week but fails to pay savers enough to beat inflation. The new “Investment Guaranteed Growth” bond will pay 2.2pc on up to £3,000. Anyone over the age of 16 can apply and the bond is open for subscriptions for 12 months.

Those who need access before the end of the term can cash in all or part of the bond. However, a penalty fee equivalent to 90 days’ interest will apply. So customers who cash in within 90 days of buying the bond will get less back than originally invested.

The bond is online only – this is the first time NS&I has limited account opening and management to the web, rather than via post or telephone.

When the NS&I bond was announced last November the Chancellor promised it would be “market leading” at launch. At the time the highest paying three-year bond was 1.63pc from Ikano Bank. So at that point it was competitive. Since then rates have fallen, meaning the bond does pay the highest rate. However, it still falls short of inflation, which is currently 2.3pc and is expected to rise further in the coming months.

In addition, savers can only deposit £3,000 into the NS&I account, which limits the return. Those who pay in the maximum will earn £66 interest in a year. Secure Trust Bank’s three-year bond offers 2pc and customers can save up to £1m – although only £85,000 of this would be protected by the Financial Services Compensation Scheme.

Those who tie up funds with NS&I for three years will earn just £6 more a year than with Secure Trust Bank.

Tesco Bank’s current account also offers the same rate on the same balance – and it allows customers access to their funds without penalty. Savers would need to pay in £750 a month and set up three direct debits to get the rate.

Andrew Hagger, founder of MoneyComms, the personal finance site, said the bond would no doubt be popular as savers are “desperate to grasp any opportunity in the current low-rate climate”.