NS&I - Guaranteed Growth Bonds - Minimum, not a Maximum Rate?

PSilver

I've just received my Guaranteed Growth Bonds maturity letter from NS&I and reviewing the renewal option, they state the following:

On its maturity date your Guaranteed Growth Bond will automatically start a new 1-year term at the new rate of 4.18% gross/AER, unless you choose one of the other options. Even if the rates on offer for Guaranteed Growth Bonds fall between now and the maturity date, you'll still earn the rate quoted above if you renew your investment for a further term of the same length. If the rates go up between now and the maturity date, you will receive the higher rate.

This isn't explicitly stated on their web site though:

https://www.nsandi.com/interest-rates

I contacted NS&I for clarification and they confirmed that yes, if the rate increases between renewal and maturity, I will benefit from the higher rate and it will be pro rata.

I didn't know this about GGBs but now believe that if the advisor is correct, it's a really valuable and compelling distinction from other savings products. 

eskbanker

Surely that just covers the period from choosing to renew and the maturity of the old product, i.e. a rate guarantee for something like 30 days?

PSilver

eskbanker said:

Surely that just covers the period from choosing to renew and the maturity of the old product, i.e. a rate guarantee for something like 30 days?

That's what I assumed too and that the wording wasn't ideal. I wish I'd recorded the response from the helpline because I still don't believe it.

It must be wrong no other fixed rate bond does this, surely?

InvesterJones

It's not uncommon - you can lock in the quoted rate ahead of renewal, or if the rate increases before renewal, you get the higher rate (saves you cancelling and renewing/buying again). But once the renewal actually kicks in and the bond is bought (at either the quoted rate or higher) then it's fixed for the length of the bond.

When the advisor talks about maturity they're meaning of your old bond, so the period between the renewal option being chosen and the maturity of the old bond (when the renewal actually kicks in).

eskbanker

PSilver said:

eskbanker said:

Surely that just covers the period from choosing to renew and the maturity of the old product, i.e. a rate guarantee for something like 30 days?

That's what I assumed too and that the wording wasn't ideal. I wish I'd recorded the response from the helpline because I still don't believe it.

It must be wrong no other fixed rate bond does this, surely?

Are you saying that the helpline advisor implied a rate guarantee for the duration of the new product, despite it clearly being a fixed rate account?  Underpaid and underinformed customer service agents can give all sorts of impressions, even if there was complete clarity about exactly what question was being asked, but that doesn't mean they're correct, so when there's a discrepancy between what's documented and what's said, it's generally best to assume the former is definitive....

ColdIron

I can't think of many fixed rate accounts with a renewal offer I've ever had that don't do this. After all it's the work of moments to cancel your instruction and just open the higher rate, with perhaps a funding window, before it matures

However I don't think there's much chance of rates increasing in the near term

PSilver

ColdIron said:

I can't think of many fixed rate accounts with a renewal offer I've ever had that don't do this. After all it's the work of moments to cancel your instruction and just open the higher rate, with perhaps a funding window, before it matures

However I don't think there's much chance of rates increasing in the near term

Yes, you're understanding it exactly how I think it works too. My concern was that the wording wasn't clear and when I spoke to an advisor to clarify, they claimed that *after* I'd renewed, if the rate was to change then, I'd receive the higher rate pro rata.

I rang the helpline again and explained the issue and the response I'd been given previously. The second advisor stated that on the date of renewal, the rate would then be fixed at a minimum of 4.18% but higher if the rate had changed between now and the date of renewal - obviously, this is how I'd expect a fixed-term, fixed-rate bond to work.

eskbanker

PSilver said:

ColdIron said:

I can't think of many fixed rate accounts with a renewal offer I've ever had that don't do this. After all it's the work of moments to cancel your instruction and just open the higher rate, with perhaps a funding window, before it matures

However I don't think there's much chance of rates increasing in the near term

Yes, you're understanding it exactly how I think it works too. My concern was that the wording wasn't clear and when I spoke to an advisor to clarify, they claimed that *after* I'd renewed, if the rate was to change then, I'd receive the higher rate pro rata.

I rang the helpline again and explained the issue and the response I'd been given previously. The second advisor stated that on the date of renewal, the rate would then be fixed at a minimum of 4.18% but higher if the rate had changed between now and the date of renewal - obviously, this is how I'd expect a fixed-term, fixed-rate bond to work.

Sounds like there may have been misunderstandings regarding potentially ambiguous terms like the 'date of renewal', which could mean the date on which renewal was nominated or the maturity date of the old product, but yes, it seems clear that the rate guarantee only applies in between these two dates.