Interest rates on bonds issued by government-backed bank National Savings and Investments (NS&I) have hit their highest point in years.
Savers can access up to 5.1% interest on Guaranteed Growth Bonds from the bank, having been offered less than 2% just under a year ago.
From Thursday, the NS&I will pay 5% interest on one-year guaranteed growth and income bonds, up from 4% and 3.9% respectively.
Two and three-year deals will come with rates of 5.1% meanwhile, as the government-backed savings bank raises interest in line with last month’s base rate hike by the Bank of England.
“I’m pleased that we’re able to announce these changes today for new and existing customers to take advantage of,” NS&I boss Dax Harkins commented.
Given the accounts are Treasury-backed, earnings are guaranteed on NS&I accounts, with savers able to deposit up to £1mln in growth and income bond accounts respectively, though this is locked away for the course of the fixed term.
Higher rates on government debt securities could well prompt more competitive rates in the wider banking sector meanwhile, according to interactive investor Myron Jobson.
“[This is] a move that could keep competition alive in the rest of the market,” he commented, with the NS&I hikes in 2009 having led to better offers from high street lenders.
However, banks may well have found themselves with more cash in reserve, Hargreaves Lansdown analyst Sarah Coles warned, meaning the need to raise rates to attract customers may not be as prevalent as after the financial crisis.
The NS&I’s current rates mark the highest in over 14 years, with 3.95% being offered on 2009’s one-year fixes and 4.75% paid on 2008’s five-year deals.