NS&I New Growth Bonds

funguy

Hi All,
I just renewed my growth bond with the NS&I last month at a rate of 0.95% fixed for a year (Nov17-Nov 18)

I see the rate has just increased to 1.50% fixed for a year. If i cash in early then i lose 90 days interest - I think im correct in saying that even if i cash in early and pay the penalty, I will be better off at the end of the year. Has anyone else done this - do they just show a negative interest amount till you make it up or take it out your capital?

Its also 2.2% for 3years but would people agree its likely to not be worth it incase of rate rises in the future?

Thank you

talexuser

I think 2.2% for 3 years is a risk on beating inflation (now 3% CPI and 4% RPI). The last 2 years would have to be well below 2% target to break even, the way Brexit is going we may have a significant slowdown needing lots of money printing. It's probably a good bet if you are averse to any risk though.

RG2015

funguy wrote: »

Hi All,
I just renewed my growth bond with the NS&I last month at a rate of 0.95% fixed for a year (Nov17-Nov 18)

I see the rate has just increased to 1.50% fixed for a year. If i cash in early then i lose 90 days interest - I think im correct in saying that even if i cash in early and pay the penalty, I will be better off at the end of the year. Has anyone else done this - do they just show a negative interest amount till you make it up or take it out your capital?

Its also 2.2% for 3years but would people agree its likely to not be worth it incase of rate rises in the future?

Thank you

I have not done this but the I agree that you will be better off by cashing in the 0.95% bond and taking out a 1.50% bond. On £10,000 for a full year, the interest is £95 compared to £150 with a penalty of £23.42. The Ts&Cs state that if you cash in before 90 days that you will get out less than you invested. So yes, they will take it out of your capital.

The Ts&Cs state that as Bonds are a fixed rate investment with a set term, there is no right to cancel after investment. However, I was able to do this with Virgin Money when they increased their rates one day after I took out a fixed term ISA .

Does any one know why the 14 day cancellation rights do not apply to NS&I?

2.20% for three years probably won't match inflation but I am not sure that 1.50% for one year is less of a risk. Will one or three year rates be anywhere near inflation in a year's time?

EachPenny

Unless you are investing more than the £75k I'm not sure there is a good reason to invest with NS&I at a fixed rate of 1.5% for a year. You can already get 1.45% easy access, with a possibility of the rates nudging up a bit more. Putting even a fraction of the total into a regular saver @2.25% would mean it was possible to beat 1.5% overall without too much effort. The 1.45% rate is not fixed, but if interest rates fall significantly over the next 12 months then we will all have far more to worry about than a fraction of a percent on our savings rates.

jamiex

If you're considering the 1.5% 1 year bond, it seems to me you'd be better off choosing the 2.2% 3 year option instead for the following reason:

Withdrawing after 12 months would cost you 90 days' interest penalty (approximately 1/4 of the interest = 0.55%) leaving you with an effective rate of 1.65%.

Here's what I've calculated as the AER based on the number of months with the 3 year bond: (apologies, can't figure out how to format this in a table)

Months AER
1 -4.40%
2 -1.10%
3 0.00%
4 0.55%
5 0.88%
6 1.10%
7 1.26%
8 1.38%
9 1.47%
10 1.54%
11 1.60%
12 1.65%
13 1.69%
14 1.73%
15 1.76%
16 1.79%
17 1.81%
18 1.83%
19 1.85%
20 1.87%
21 1.89%
22 1.90%
23 1.91%
24 1.93%
25 1.94%
26 1.95%
27 1.96%
28 1.96%
29 1.97%
30 1.98%
31 1.99%
32 1.99%
33 2.00%
34 2.01%
35 2.01%
36 2.20%

RG2015

The 90 day penalty does appear rather generous. Is it possible that NS&I may amend this in the near future?

I assume that they could not doe this retrospectively.

EachPenny

RG2015 wrote: »

The 90 day penalty does appear rather generous. Is it possible that NS&I may amend this in the near future?

I assume that they could not doe this retrospectively.

If it was a much higher interest rate then I'd agree with you, but 2.2% is not that spectacular when you consider what rates elsewhere might look like in 12 months time.

NS&I have built a reputation on security and reliability and I doubt they would want the potentially negative publicity if rates go up further and many 'pensioners'* find themselves 'trapped' on a poor interest rate with a punitive loss if they close the account early.

*I use the word 'pensioners' not as a factual remark, but the term the media are likely to use in spinning the story.

RG2015

EachPenny wrote: »

but 2.2% is not that spectacular when you consider what rates elsewhere might look like in 12 months time.

Love your optimism!

EachPenny

RG2015 wrote: »

Love your optimism!

I'm not entirely optimistic though!

What I mean is 12 months ago we were scrabbling around for easy access accounts which paid 1%, some of NS&I's rates had then recently fallen from 1% to 0.75%. Now we are discussing best buys of 1.45% with only a 0.25% BoE rate increase - and only a handful of providers have so far increased their rates as a result of the BoE increase.

Many of those familiar with current account interest and regular savers would view 2% as the minimum worth bothering with, some RS accounts have already been increased to 2.5%.

Another BoE rate rise, another round of banks putting up their rates a bit, and 2.2% could start to look a bit mean, especially for an account which ties your money up for three years.

A relatively small exit penalty gives people an 'out'. But another factor is people who accept NS&I's generally lower interest rates are perhaps more conservative in their outlook and habits than others, so don't need a significant penalty to induce them to stay put.