What the end of NS&I 6.2% bond tells us about cash savings.
The past year has been a golden period for anyone looking for interest on their cash, with savings rates beating inflation by the highest amount in years.1
The high-water mark of this savings boom may well have been issue 72 of the NS&I One-year Guaranteed Growth Bond, launched on 31 August last year and paying savers 6.2%.
It was the highest rate the savings provider had ever offered for that type of bond. With the extra security provided by state-backed NS&I encouraging savers to deposit some £11.3bn into the bonds.2
A year on and the 6.2% rate has now expired. With interest rates generally falling, the thousands of savers who bought the NS&I bond will need to find a new home for their money.
What options do they have, and what are the prospects for cash savings returns from here?
Where now for NS&I savers?
Anyone who invested money into the NS&I bond last year will have enjoyed a healthy real return. While their money grew by 6.2% since last August, inflation (measured by CPI) was just 2.2% over that time — a real return of 4%.3
It’s been a long time since savers have had it that good, and these real returns are unlikely to be repeated in the coming year.
Savings rates have been falling ever since the NS&I bond was issued last year, and replacement bonds have been offered at lower rates.
There are currently no one-year NS&I bonds for sale to new customers, but those who held maturing one-year bonds have been offered replacements at 4.75%.
If someone doesn’t already own a maturing bond, the best they can get from NS&I is a two-year bond paying 4.10%.
That’s still well head of inflation but a significant downgrade on the returns of the last year. The returns will be subject to tax too.
Where next for savings rates?
Savings providers ultimately set savings rates, but these are closely influenced by the interest rate set by the Bank of England in response to rising and falling inflation.
The prices of fixed-income assets, such as government bonds, can indicate where the market expects interest rates will be in the future.
Right now, the bond market suggests that the Bank Rate will fall from its current level of 4.75% to 4.1% in 18 months, although this is purely indicative.
Are you looking for a new home for your cash investments?
With interest rates beginning to fall – and with more cuts predicted shortly – many individuals may be considering where to put this money once it becomes available.
Whether you are seeking growth, income or a combination of the two. There are a lot of cash accounts paying competitive returns if you prefer to keep this money out of the markets.
The good old ISA
An ISA has always been one of the best ways to invest money, as you can shelter £20,000 each tax year. As you will know, no income or capital gains tax is paid on the returns generated.
You have choices of cash ISA or invest via a stocks & shares ISA.
Read the 7 top saving tips for your cash savings.
The Pension savings route
While you won’t need reminding, it’s worth reiterating that pensions are one of the most tax-efficient ways for clients to save for retirement.
In addition to the tax relief on contributions, investments grow free of income and capital gains tax. The annual allowance is currently set at £60,000 for most individuals, but if carry-forward is available, more can be invested.
Pension plans are now designed to offer value, choice, and options at retirement, with all the flexibility clients need. These plans include death benefit planning and an extensive range of investment options.
Cash options
To reinvest maturing cash deposits, visit a comparison website such as moneyfacts.co.uk. can help you.
Please reach out to us today if you’d like to discuss your savings options.
Source:
1 Fidelity International, Office for National Statistics, Bank of England, June 2024
2 Savings Champion, 1 August 2024
3 Office for National Statistics, consumer price inflation, July 2024
