British savers are being tempted to lock in their cash savings for longer periods of time, as the average price on term products is reaching levels last seen 15 years ago.
The National Savings and Investments Company said on Thursday that it will raise the offer price on its one- and two-year bonds to 5 and 5.1 percent, respectively.
The changes were announced as the average price offered on similar products in the retail banking market rose to 5.03 percent, according to data provider Moneyfacts. Average prices offered on fixed savings products for one or two years are now at levels last seen in 2008.
The increases come as the Bank of England intensifies its fight against inflation, having recently raised its official interest rate to 5 per cent.
“People are worried that rates will go down and are trying to hold on to savings now,” said Rachel Springol, personal finance expert at Moneyfacts. It said rates were higher than 6 percent at rival banks, as major rivals struggle to compete.
The NS&I move signals its growing ambitions in the savings market as it tries to meet government targets.
Chancellor Jeremy Hunt commissioned NS&I last March to raise £7.5bn in the 2023-24 financial year, £1.4bn more than the previous year. The service provider exceeded targets by £4bn last year, raised £10bn in 2022-23 and is now on track to raise more money this year.
Households deposited £2.4 billion into the NS&I in April and May this year, according to the Bank of England. That’s up from £900m in the same period last year, as successive price increases whetted consumer appetite.
Savers are still looking at NS&Is despite better rates offered elsewhere, because of the higher protection, said Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, a savings and investment platform. Unlike other providers, who are covered by the £85,000 Deposit Protection Scheme, NS&I clients are protected by up to £1m.
Investors can use the brokerage platforms to hold deposits with multiple providers on a single account, enabling them to further protect over £85,000 by distributing funds.
NS&I also improved rates on its easy access account, by up to 3.4 per cent, as debates broke out over whether banks should do more to raise rates, including on easy access accounts.
The rate is higher than those available in the big four banks – Barclays, Lloyds, HSBC and NatWest.
Bank of England governor Andrew Bailey said on Wednesday that banks should pass on higher interest rates to savers, echoing demands by Hunt, who urged banks to do more on easy access rates.
