UK Savings Rates Hit Three-Year High as NS&I Boosts Yields to 5%

National Savings and Investments (NS&I) has raised returns on several of its accounts, marking the first time many products have offered yields exceeding 5% in almost three years. The move comes amid intensifying competition in the UK savings market, which has driven interest rates to their highest levels in years.

Despite the attractive figures, financial experts caution that such competitive deals often do not endure. Rachel Springall from Moneyfactscompare.co.uk noted that providers frequently withdraw products once they accumulate sufficient savings capital.

NS&I has rebranded its guaranteed growth and income bonds as “British savings bonds,” offering fixed rates over terms of one, two, three, or five years. These deals are available to new customers and those with maturing accounts. Growth bonds accrue interest annually and pay out at maturity, whereas income bonds distribute payments monthly.

Under the updated rates, the one-year growth bond now pays 4.99%, up from 4.82%, while the two-year rate has climbed to 5.07% from 4.81%. The three-year bond has risen to 5.1%, and the five-year option has increased to 5.17% from 4.85%.

Sarah Coles, head of personal finance at AJ Bell, pointed out that although these rates are competitive, consumers can still secure higher returns elsewhere. At present, the top-paying one-year fixed-rate bond offers 5.12% through the Union Bank of India (UK), while the highest five-year fixed bond, provided by GB Bank, yields 5.37%.

For individuals managing large sums, such as inheritance proceeds or house sale funds, NS&I bonds present a distinct advantage: investors can place up to £1 million per person in each bond issue, with a minimum investment of just £500. Furthermore, because NS&I is backed by the Treasury, it guarantees 100% of savings above the standard £120,000 bank protection limit, with funds reinvested to support the UK economy.

However, the fixed-term nature of these bonds means access to capital is restricted until maturity, making it prudent to maintain funds in high-yield easy-access accounts for emergencies. Earlier this month, Starling Bank announced a 5% interest rate on its Easy Saver account for customers who opened a current account on or after October 1. This rate combines a 2.5% variable standard rate with a 2.5% fixed bonus lasting six months, applicable to balances up to £25,000. Those who joined Starling prior to October 1 can access a 4% rate on the same product.

In other market movements, Marcus by Goldman Sachs increased the interest rate on its one-year fixed-rate savings account from 4.3% to 4.75% this week.