National Savings and Investments (NS&I)

This guide will explore National Savings and Investments (NS&I), the government-backed savings entity renowned for its security and broad range of products. Understanding how NS&I differs from conventional banking institutions and the unique benefits it offers can help you make informed decisions about where to place your savings.

What is NS&I?

National Savings and Investments (NS&I) is a government backed form of savings account, meaning that they offer a secure way to store your money away. They benefit from having no limit to the amount that the government will protect, in contrast to a normal bank's savings accounts.
When you save with a normal bank or building society, the government can only secure up to £85,000 per bank in the event of the organisation collapsing. What this means in reality is that if you have a shared account with £100,000 in it, there is a very real possibility that you could lose up to £15,000.

Types of savings and investment products

National Savings and Investments offer a wide range of products such as cash ISAs, premium bonds, EASA, children bonds, income bonds and standard accounts. Explore these different products in detail:

NS&I easy access savings accounts

NS&I Easy Access Savings Accounts are standard savings accounts offered by National Savings and Investments, providing the flexibility to deposit and withdraw funds without restrictions.

The interest on these accounts is initially paid gross, which means no tax is deducted at the time of payment. However, this interest is subject to UK Income Tax, so depending on your tax status, you may need to declare this interest on your annual tax return.

This means that it's your responsibility to manage and report any tax due based on your individual income level and personal allowance. This setup ensures that you have access to your interest earnings upfront and manage your tax obligations later, offering both liquidity and responsibility.

Cash ISAs with NS&I

Cash ISAs offered by NS&I are tax-exempt savings accounts, meaning any interest earned is free from UK Income Tax, and there is no need to declare this income on your tax return. Like all ISAs, there is an annual limit to how much you can contribute.
For the 2023/24 tax year, the annual ISA subscription limit is £20,000. This limit applies to the total amount you can deposit across all types of ISAs (Cash ISA, Stocks and Shares ISA, Innovative Finance ISA, and Lifetime ISA) in one tax year. This limit has been consistent since the 2017/18 tax year but always check for any updates or changes that might occur for future tax years when information becomes available.

Saving certificates

Saving certificates from NS&I are free from tax but are not as readily available due to the limited amount that can be given out. Similarly to most different savings accounts the NS&I savings certificates can be either fixed or index-linked. This means that you have the choice between receiving one fixed rate of interest or earning an amount that is directly linked to inflation.

The safest option, in terms of saving, tends to be an index-linked account due to the fact that you do not need to be concerned about losing out in comparison to inflation. However, accounts such as these normally ask for a longer term of commitment.

Children's bonds from NS&I

Many savers are now choosing to put money away for their children in bonds offered by National Savings and Investment. These bonds are also tax-free.

These children's bonds represent a longer-term investment and are provided in things known as "issues". There is a fixed amount of interest with each one of these issues and they pay out on a regular basis. Bonds are taken out for five years at a time, once this period is over you can choose whether or not to remove all of the money or you can extend the bond by another five years.

There is a limit of £3,000 that can be saved in a children's bond. The minimum sum that you can deposit is £25 and you are only able to deposit in one sum for each issue. Only children under the age of 16 can take out one of these bonds.

Premium bonds

The last available form of tax-free saving from NS&I are premium bonds. You can save up to £30,000 in a premium bond but they have a different way of paying out than normal savings accounts.

These bonds do not pay out interest in the same way as standard savings accounts do, instead, you will be entered into a prize draw that happens every month. The average prize pays out at £50 but there is a chance that you could win up to £1 million.

But it is important to remember that you are not in any way certain of winning a prize and you will continually lose out to inflation due to the fact that there is no interest paid on these bonds.

Guaranteed income bond

NS&I also offer guaranteed bonds that will pay out a fixed amount. This means that you are aware of the precise amount of money that you will receive from these bonds, however, these bonds are not tax-free. Depending on which tax band you are in, you could pay 20-40% tax.

Benefits of using NS&I for your savings

These advantages make NS&I an appealing choice for those looking for secure, flexible, and socially impactful ways to save and invest their money:

Government Guarantee: Unlike traditional banks where savings are only protected up to £85,000 per institution under the Financial Services Compensation Scheme, NS&I provides a unique benefit as all deposits are fully backed by HM Treasury. This means there is no upper limit to the amount that is secured, offering unparalleled safety for your money.

Diverse Product Range: NS&I offers a variety of savings products to suit different financial needs and goals, including cash ISAs, Premium Bonds, children's bonds, and income bonds. Each product is designed to provide flexibility and benefits, whether it's tax-free interest, the excitement of winning cash prizes, or saving for a child’s future.

Tax-Efficient Savings: Many NS&I products offer tax-free interest or prizes, which can make them an attractive option for maximising returns on your savings without impacting your taxable income.

Accessible and Convenient: NS&I allows savers to manage their accounts online, by phone, or by post. This accessibility makes it easy for everyone, regardless of their tech savviness, to manage their investments efficiently.

Supports Public Services: By saving with NS&I, you are lending money to the government, which it uses to fund essential public services and infrastructure. This creates a beneficial impact beyond individual savings, contributing to national development.

Potential downsides of using NS&I

While NS&I offers significant benefits, there are some limitations to consider. For example, the interest rates on some NS&I products can be lower compared to other savings options available in the market, which might not appeal to those seeking higher returns.

What's more, premium bonds, a popular NS&I product, do not provide regular interest payments but rather offer the chance to win cash prizes, which can be unpredictable and might not yield any return at all. This lack of guaranteed income could be a drawback for savers who rely on consistent interest earnings.

Some NS&I products also have restrictions on withdrawals or require longer-term commitments, which could reduce flexibility for those who might need access to their funds more readily.

FAQs

Are NS&I savings tax-free?

Not all NS&I products are tax-free. Premium Bonds and ISAs from NS&I offer tax-free returns, meaning you don't have to pay UK Income Tax or Capital Gains Tax on the interest or prizes you earn. Interest from Direct Saver and Income Bonds is paid gross (without tax deducted) but may be subject to tax depending on your personal tax situation. However, NS&I's Index-linked and Fixed Interest Savings Certificates provide tax-free interest, exempt from both Income Tax and Capital Gains Tax.

Does NS&I offer competitive interest rates?

NS&I's interest rates can vary and may not always be as competitive as those offered by high-street banks or other financial institutions. While NS&I provides a high level of security backed by HM Treasury, this often means that the interest rates on some of its products, such as savings accounts and bonds, may be lower than the market average. This trade-off between security and yield is a key consideration for savers.

Can I access my money whenever I want?

With NS&I, the accessibility of your funds varies by product. For instant access, the NS&I Direct Saver allows you to withdraw funds anytime without penalties. However, fixed-term products like the Fixed Interest Savings Certificates and Guaranteed Growth Bonds require locking in your money for a specific period, with penalties for early withdrawal. Premium Bonds offer flexible access, permitting withdrawals without financial penalty, typically processed within about 8 working days. Always consider your need for liquidity when choosing an NS&I product to ensure it aligns with your financial goals