Millions of people have some form of account with government-backed savings provider  National Savings & Investments (NS&I).

Over the years, NS&I has offered a wide range of accounts, from fixed-rate bonds, to ISAs, Premium Bonds, and general savings accounts. As it’s backed by the UK government, savers have peace of mind that any money they put into one of these accounts is fully protected.

However, bear in mind that NS&I has been cutting its rates over recent years, and so it offers far lower returns than you can earn on your savings elsewhere. As long as you save into an account with a provider who is regulated by the Financial Conduct Authority, your money will be protected up to £85,000 by the Financial Services Compensation Scheme (FSCS).

Here we explain exactly what NS&I is, how it works and some of the products on offer.

What is NS&I?

NS&I was founded in 1861 to give everyone the opportunity to save their money in a safe place while creating a valuable pot of funds for the government. However, while NS&I has been described as a government savings bank, it is not a bank in the traditional sense, as it only offers savings products and does not lend. So if you are looking for a current account, credit card, or mortgage, for example, you will need to look elsewhere.

NS&I is a government department and an executive agency of the Chancellor of the Exchequer. This essentially means that while NS&I is government-run, it is not influenced by parliamentary politics and operates under its own management and budget. This means that NS&I is free from political influence, so its operations aren’t swayed by any particular political party, their policies, or their aims. Government backing also means that any money you save with NS&I is 100% safe, and if NS&I were to fail (which is extremely unlikely) then you would be eligible for compensation amounting up to the full amount saved. By contrast, savings held in bank and building society accounts are generally protected up to a maximum of £85,000 by the Financial Services Compensation Scheme (FSCS).

NS&I offers six core products, but these have changed over the years. Currently, these products are:

  • Premium Bonds
  • Junior ISAs
  • Income Bonds
  • Direct ISAs
  • Direct Saver accounts
  • Investment accounts

Also, green savings bonds will be offered by NS&I later this year, aimed at helping to fund the government’s aim to reach the net-zero carbon emissions target by 2050. The initiatives will include greener transport, renewable energy, preventing pollution, becoming more energy efficient, protecting natural resources and adapting to climate change.

NS&I recently announced that people over the age of 16 will be able to invest between £100 and £100,000 in three-year fixed-term Green Savings Bonds, which means that once you deposit your money into the bond, you won’t be able to access it again until the end of the three-year term (with a 30-day cooling-off period in case you change your mind). However, you will get a fixed interest rate over the three years, although it’s not yet been announced what this will be. Despite suggestions that these bonds would be available by summer this year, they have been delayed and it’s unclear when they will be released.

How does NS&I work?

When you save money with NS&I you are effectively lending money to the UK government. While NS&I operates independently of party politics, it is used by the government to provide funding for various government initiatives and debts.

NS&I’s financial targets are detailed each year in the UK Budget, which outlines the amount of money the government needs NS&I to raise. NS&I uses this as a factor to decide what interest rate to offer to attract savers. It will usually offer higher interest rates when its targets are higher. Yet this does not mean that their rates outstrip other savings providers, but rather that they aim to strike a balance between the interests of savers, taxpayers and the broader financial services sector.

Changes over the last year are a useful example of how NS&I works:

  • In March 2020, before the pandemic came into full force, NS&I was given a funding target of £6 billion (+/– £3 billion) by the UK government, which is a relatively standard sum for them.
  • However, in July, during the height of the pandemic, the government raised this target to £35 billion (+/– £5 billion) to help fund its response to covid.
  • By the end of September 2020, NS&I had beaten this target, raising £38.3 billion as more people than ever before were looking to put their savings somewhere safe and enjoy the interest rates NS&I were able to offer in a time of historically low interest rates.
  • As NS&I recognised that it had reached its target well ahead of schedule it announced a cut in interest rates in November, aiming to strike a balance between the interests of savers, taxpayers and the broader financial services sector.
  • This led to huge numbers of people withdrawing their savings, which left NS&I with £23.8 billion in funding. This was £11.2 billion short of their target, but still a record year.

What are Premium Bonds?

Premium Bonds are a type of savings product which, rather than paying you interest on a monthly or yearly basis, enter you into a lottery to win monthly tax-free prizes that may be anywhere between £25 to a maximum of £1 million.

Premium Bonds, originally introduced in 1956, are by far the most popular product that NS&I offers, with over 21 million people saving over £109 billion in them in 2020.

The minimum investment is £25 and the maximum is £50,000. Each £1 you invest is given a unique reference number which is then entered into the lottery for your chance to win a prize. The odds for winning a prize currently stand at 1 to 34,500, but there’s every chance that you might not win anything.

You can withdraw cash from your Premium Bonds by cashing in your bonds at any time without paying any penalties. You can also top up at any point, up to the maximum investment of £50,000.

If you are interested in learning more about Premium Bonds, have a look at our article Are Premium Bonds better than saving accounts?

What is an NS&I Junior ISA?

A Junior ISA (Individual Savings Account) is an account designed for saving for children, which they can then access when they turn 18. Only a parent or guardian can open a Junior ISA with NS&I, but anyone can contribute either through bank transfer or standing order.

The NS&I Junior ISA currently pays 1.5% but the rate is variable so it could change at any time. You can open an account with just £1 and deposit up to £9,000 in the 2021-22 tax year. Money held in a JISA cannot be withdrawn until the child turns 18, at which point the money may be transferred into an adult ISA. You can find out more about ISAs in our guide Everything you need to know about ISAs.

What is an NS&I Income Bond?

An NS&I Income Bond is an easy access savings account that will pay you interest monthly, directly into your bank account. So unlike a Premium Bond, you will definitely get a return on your savings each month. This may be paid directly into your bank account (which does not have to be an NS&I account), effectively providing you with an ‘income’.

However, NS&I Income Bonds currently pays a paltry 0.01%, with a minimum initial deposit of £500 and a maximum balance limit of £1 million. It’s worth noting that at the current low interest rate, NS&I is currently advising that accounts with less than £646 will not receive any interest payment every month.

You are free to withdraw money from the account as frequently as you wish with no penalties, but you will need to hold £500 in the account to keep it open.

What is an NS&I Direct ISA?

It’s an easy access ISA that pays 0.10%. The rate is variable, so it could change at any time. NS&I will pay the interest to you annually on 6 April.

The rules around ISAs are different from standard savings accounts. When you open an ISA, you will be subject to the ISA allowance which stands at £20,000 for the 2021/22 tax year. So you can open an NS&I Direct ISA with a minimum deposit of £1, and you can pay in a maximum of £20,000. You can learn more about ISAs and their rules in our article Everything you need to know about ISAs.

This is an easy access ISA which means you can withdraw cash and deposit money whenever you want without notice or penalty. However, this is not a flexible ISA so if you pay in £20,000 and withdraw £1,000, you will not be able to replace the £1,000 in the same tax year.

ISAs are sometimes known as tax wrappers which effectively means that any money you save in them grows tax-free, so you will not pay any tax on the interest you earn.

What is an NS&I Direct Saver?

The NS&I Direct Saver is an easy access savings account, which pays 0.15%. The rate is variable, so it could go up or down. The minimum amount you can deposit is £1 and you can save up to £2 million.

You can withdraw or deposit money whenever you want without incurring any penalties, but you will need to keep £1 in the account to keep it open.

If you want to start a joint savings account, you can do this with an NS&I Direct Saver account, and you will be asked during the application process if you would like to do this.

Unlike an ISA, you pay tax on any interest earned on savings in your Direct Saver account. However, you have a Personal Savings Allowance (PSA), enabling you to earn £1,000 tax-free as a basic-rate taxpayer (£500 as a higher-rate taxpayer). So if your Direct Saver account is your only savings account, you would need to deposit a hefty £833,000 before you start paying tax on any interest.

What is an NS&I Investment account?

The easy access NS&I Investment account can only be opened by post and pays 0.01%, which is calculated daily and paid annually on 1 January.

The minimum amount you can open an account with is £20 and you can pay in a maximum of £1 million.

The NS&I Investment account is available to people over the age of 16, but a parent, guardian, grandparent or great-grandparent (or these individuals can open one jointly) can open an account for someone under 16. It is this feature that makes the NS&I Investment account unique as it allows anyone to open the account on behalf of a child (a Junior ISA can only be opened by a parent or guardian).

You can deposit or withdraw money from the account at any time without paying any penalties, but you will have to do this via a form that you can post or complete online.

As with the Direct Saver, you will pay tax on any interest you make on savings in your NS&I Investment account over your Personal Savings Allowance (PSA), but because the interest is so low it is extremely unlikely that you will be subject to tax.

Where can I get an NS&I product?

If you have considered your options, compared rates, and still think one of the NS&I products might be right for you, you can find more information on the NS&I website, over the phone (08085 007 007), or via post: NS&I, Sunderland SR43 2SB. Bear in mind that the NS&I Investment account can only be applied for via post.

Do you save into an NS&I product? Or have you held any over the years? Is there any advice you would give someone thinking about getting one? We’d love to hear from you. You can join the money conversation on the Rest Less community or leave a comment below.


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