The 2024 Spring Budget announced the launch of British Savings Bonds.

British Savings Bonds are a savings account offered by National Savings & Investments (NS&I) and are intended to be priced mid-market in relation to similar products with the aim of savings being “invested back into supporting the UK”.

The account on offer is a 3-year fixed-term deal with an interest rate of 4.15% pa gross. As expected, in terms of competitiveness, you can achieve better interest rates on the open market at present, with the most competitive on a 3-year fixed-term account currently being 4.70% pa gross (as of 15th April 2024).

As the NS&I British Savings Bonds are not ISA accounts, any interest earned is paid gross, and hence, if you receive interest over your personal savings allowance (£500 for higher rate taxpayers and £1,000 for basic rate taxpayers) the excess will be taxed at your marginal rate of income tax. There are slightly different rules that apply to nil rate taxpayers and all interest received by additional rate taxpayers is taxable.

It is also important to note that as the interest rate is fixed for 3 years, you cannot withdraw your money within those 3 years, so you must ensure that you do not require the capital you place in one of these accounts until it has matured. It is therefore important to ensure an adequate accessible cash reserve is available for emergencies and short-term needs.

One benefit of holding your cash with NS&I is that it is backed by the Treasury and therefore your capital is fully protected. Savings deposited with most other banks and building societies are covered by the Financial Services Compensation Scheme (FSCS) but your capital is only protected up to £85,000 per person per institution.

You can deposit from £500 up to £1million in a British Savings Bond account, so for those seeking the simplicity of holding savings with one provider and can afford to tie up capital in the short term, the British Savings Bond may be of interest.