Bond will help savers to beat the market


A new savings bond leading within the markets that was uncovered by Philip Hammond recently became a good news for those who strive to save. The bond will be available for everyone starting from the next year, but it’s recommended not to celebrate the victory yet.

Not all the detailed are opened by now, and the chancellor is to show them before the spring budget. However, it’s already known that the new bond will be applied through NS&I, and it has a limited term of three years. The interest rate will be 2.2% that will most probably beat all other saving bonds with the maximum sum to be invested of £3,000.

According to Rachel Springall, finance expert at Moneyfacts, the new Investment Bond gives people opportunities that weren’t ever available. Ms Springall said that the best three-year fixed bond on the market, from Ikano Bank, paid 1.63%. The best five-year fixed rate is 2% from Milestone Savings, while the top rate on the market is the 2.07% being paid on the seven-year fixed bond from United Bank.

With interest rates expected to fall further, it is likely that the rates paid by NS&I’s rivals will be even lower when the new bond is launched next year. Ms Springall said that although this may make the bond even more attractive, interest is payable only on balances of up to £3,000, which could deter investors who have a much larger pot.

The bond is a response by the government to the plight of millions of savers struggling to boost their incomes in an era of ultra-low interest rates. It will be open to all savers aged 16 and over, unlike the Pensioner Bond announced in the 2014 autumn statement, which was available only to the over-65s.

However, a comparison of the two bonds shows just how far interest rates have fallen in the intervening years, according to Sarah Pennells, founder of SavvyWoman, the money website for women. She said: “The Pensioner Bond paid 4% over three years and 2.8% over a year, with a much higher maximum investment of £10,000.”

An expected rise in inflation may mean that savers find they are not receiving a real return on their money. Lindsey Kutten, a director at PwC, the accountant, said: “With the bond’s interest rate expected to be around 2.2%, and rates of inflation expected to be 2.3% and 2.5% in the next two years, savers will need to plan carefully to avoid having the value of their savings being eroded.”

However the new bond is still likely to be hugely popular, Ms Springall forecast. “Savers will need to act fast to get hold of a bond when they launch,” she said. “They would be wise to sign up to any alerts from NS&I and start to work out how to have their cash ready to invest.”