NS&I has announced rate hikes across its guaranteed growth bonds and guaranteed income bonds, more widely recognised as British savings bonds. The freshly issued one-year British savings bond has surged from 4.07 per cent to 4.5 per cent AER, while the two-year bond has advanced from 3.98 per cent to 4.48 per cent.
The three-year bond has leapt from 4.02 per cent to 4.45 per cent, whereas the five-year bond has experienced the smallest uplift, edging from 4.05 per cent to 4.4 per cent. The bonds additionally feature a monthly interest option, affording savers the freedom to select between a regular income stream or receiving all accumulated interest upon completion of the term.
Expert Insights on Tax Implications
Expert Anna Bowes at The Private Office commented: "This choice can be important, particularly for those who pay tax on their savings. With the longer-term bonds, if you opt to have the interest added to your bond each year and left to compound, it won't be accessible until maturity." She added: "And from a tax perspective, that means the interest will be treated as if it were received in one go at the end. If your total interest in the maturity year exceeds your personal savings allowance, you could find yourself paying tax on the excess - and possibly nudged into a higher tax band too."
Market Context and NS&I Targets
The revised rates were revealed ahead of the Bank of England's interest rate decision at 12pm yesterday (Thursday, April 30), when it maintained them at 3.75 per cent. Before the outbreak of war in Iran, there had been a strong likelihood that the Bank would have lowered the rate today. However, with fuel costs spiralling and mounting concerns that inflation could rise, the prospect of base rate reductions has been pushed back until the summer. While this signals unwelcome news for those burdened with debt, it has provided a considerable boost for savers, with rates improving significantly, particularly on fixed rate accounts, Ms Bowes explained.
Alongside responding to wider market conditions, NS&I routinely adjusts its rates to either attract or restrict the flow of money into the state-owned bank in order to meet its net financing target. This is the sum NS&I is tasked with raising on behalf of the government each tax year - taking into account both inflows and outflows. For 2026/27, that target has been raised from £13.6bn for 2025/26 to £15bn this tax year.
In addition, the recent revelation that many bereaved families had not been repaid all the funds from their loved ones' accounts following a bereavement claim may have led to some withdrawing their funds, which will need to be replaced, explained Ms Bowes.
