National Savings and Investments (NS&I) has been around in various forms since 1861. But is it a good idea to put your cash in a government-owned savings account? Let’s take a look at the pros and cons.
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What is NS&I?
Formally known as Post Office Savings and National Savings, NS&I is a government brand that provides financial products to the public.
Today, NS&I is part of the UK Treasury and offers a range of financial products, including premium bonds and savings accounts.
The purpose of NS&I is to attract savers, as the money raised through deposits is effectively lent to the government. NS&I deposits are thought to account for 9% of the UK’s national debt.
What products does NS&I offer?
NS&I offers a range of financial products.
1. Premium Bonds
Premium bonds cost £1 and each one you hold enters you in a monthly prize draw. Prizes range from £25 to £1 million, and winnings are tax-free. You can hold a minimum of £25 and a maximum of £50,000 worth of Premium Bonds.
NS&I says its premium bonds have an effective 1% prize rate, which generally beats interest rates offered by normal savings accounts. However, a 1% prize rate doesn’t mean you can expect a return of 1% on your money. The majority of people win nothing each month, with only a handful scooping the big prizes.
2. Easy access savings account
NS&I offers an easy access savings account, where you can add and withdraw cash at will. Known as a ‘Direct Saver‘, the account pays 0.15% (AER). You can save anything from £1 to £2 million. As it’s an easy access account, the interest rate is variable, so it could change in the future.
3. Easy access ISA
An ISA is a savings account that you don’t pay tax on. NS&I’s offering is known as a ‘Direct ISA‘ and pays 0.1% (AER) – a slightly lower return than its easy access savings product. You can save anything from £1 up to the annual ISA limit of £20,000.
It’s worth knowing that NS&I offers a Junior ISA account too for those under 18, but this works differently. While the interest rate is a much higher 1.5% (AER), you can only save up to £9,000 per year. You also can’t access the cash until the account holder turns 18.
Before opening an ISA, understand that the majority of those with cash in savings accounts don’t pay tax on interest anyway, due to the Personal Savings Allowance. For more on this point, see our complete guide to savings.
4. Fixed bonds
Aside from easy access accounts, NS&I usually offers fixed bonds – also known as a fixed savings account. These accounts pay a fixed rate of interest, but you can’t access your money for a set period of time.
Fixed savings accounts usually pay higher rates of interest than easy access accounts. In general, the longer the fixed-rate period, the higher the rate.
While NS&I doesn’t have any fixed savings accounts at the current time, the government recently announced its intention to launch a Green Savings Bond later this year. While we don’t know the full details, we do know that it will be a fixed savings account, and deposits will go towards environmentally-friendly projects.
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What are the pros of saving with NS&I?
The main draw of saving with NS&I is that deposits are backed by HM Treasury. This gives a 100% guarantee that your cash is safe.
When depositing cash into a normal savings account, you have to rely on the Financial Services Compensation Scheme (FSCS). It only protects up to £85,000 of your cash should a bank or building society go into liquidation.
While this is good enough protection for most, should you need to make a claim under the FSCS, it’s possible you’ll have to wait a while to get your money back. As NS&I doesn’t rely on FSCS, you can also deposit more than £85,000 safe in the knowledge that your money is protected.
Another advantage of NS&I is that its Premium Bonds are unique. Buy £25 of Premium Bonds and you could be a millionaire in a month. This isn’t true with normal savings accounts. While the vast majority won’t win life-changing prizes, the mere thought of hitting the jackpot may be enough to convince you to open an account.
What are the cons?
NS&I savings products often aren’t market-leading. So if you’re looking to open a savings account, you might find higher interest rates elsewhere.
Another negative associated with NS&I is that many of its new accounts, such as its planned Green Bond, are often announced months in advance. This means other providers have time to modify existing products or launch new ones that overshadow NS&I offerings.
Finally, while we’ve touched on the potential excitement of hitting the Premium Bond jackpot, it’s worth knowing that your chances of winning a million are minuscule. That’s because you only have a 1 in 49.48 billion chance of winning £1 million with a single bond. Furthermore, while NS&I pays a 1% prize rate, it used to be a much higher. The previous 1.4% rate was cut in December 2020.
If you have savings, take a look at our savings guide to learn the best places to stash your cash.
