'I'm an expert - here's why British Savings Bonds might not be a silver bullet'
EXCLUSIVE: Savers are warned by personal finance experts that there are better options to grow your money.
The British Savings Bonds announced in the Spring Budget have launched with concerns the new savings options are not competitive given their 'mid-table' interest rates.
The three-year fixed rate accounts from NS&I come in two versions, including Guaranteed Income Bonds and Guaranteed Growth Bonds, both at 4.15 percent AER (annual equivalent rate).
But savers can get a better rate on other three-year fixed rate bonds and on other savings accounts.
Sarah Coles, head of personal finance at Hargreaves Lansdown, told Express.co.uk: "This rate just isn’t going to be special enough to persuade swathes of new savers to tie their money up for longer.
"They may well be doomed by mid-table mediocrity. There are still three-year savings accounts on the market paying 4.65 percent, and you can get cash ISAs over three years paying up to 4.4 percent, which protect your savings from tax into the bargain, so there are plenty of more attractive homes for your money."
One advantage of the new Bonds is all the funds are backed by the Treasury and you can invest up to £1million. Standard savings accounts are protected up to the first £85,000, under FCSC (Financial Services Compensation Scheme) rules.
Ms Coles said the accounts may appeal to those with "huge savings balances" but these more wealthy savers have other options to build up their savings.
She explained: "They can use a savings platform to spread larger sums across different banks. They can stay within the FSCS limit and see everything in one place, while still securing great rates.
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"NS&I was going to have to offer something special to set the fixed rate savings market alight. Easy access savings are dominating at the moment, where savers can make more than five percent without any need to tie their cash up for longer.
"Within Hargreaves Lansdown Active Savings, three-year deals make up less than half a percent of client savings, because savers are favouring easy access and shorter fixes.
"This rate just isn’t going to be special enough to persuade swathes of new savers to tie their money up for longer."
The income bonds provide a monthly income for savers, with interest paid out each month, while the interest on the growth bonds is paid at the end of the term.
Savers can invest from a minimum of £500 up to £1million in the accounts, with all the funds backed by the Treasury in the Government-backed accounts.
Once you have purchased one of the fixed-term Bonds, they cannot be added to, but you can buy more separate Bonds while they are still on sale.
After the funds have been invested, they cannot be accessed until the end of the three-year term.
Chancellor Jeremy Hunt announced the Bonds in his Spring Budget, in efforts to unlock more investment in UK industry.
He also set out plans for an additional ISA allowance of £5,000, with the extra amount to be used for investments in UK equity.
The proposal for the extra allowance is currently under consultation, until June this year.
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