- Savers poured £7.7bn into NS&I accounts in September
- NS&I’s 6.2% one-year fixed-rate bonds were largely responsible
- NS&I launching the bonds ‘hurt the rest of the savings market’ one expert says
Savers rushed to pour £7.7billion into National Savings and Investments accounts in September, according to the Bank of England’s Money and Credit report.
This is the biggest influx of cash for the Treasury-backed bank in one month since August 2020, when savers funnelled in £9.8billion.
At the start of September, NS&I launched two best buy one-year fixed-rate bonds – Guaranteed Growth Bonds and Guaranteed Income Bonds – which paid a rate of 6.2 per cent.
Experts say the rate on these accounts were ‘undoubtedly’ the main reason behind the sharp rise in cash moving into NS&I.
Savings rush: Savers rushed to pour £7.7bn into NS&I accounts before the Treasury backed bank pulled its 6.2% one-year fixed-rate bonds
The Guaranteed Growth Bonds dominated the best buy tables for the entirety of the five weeks they were on sale as no other savings provider able was able to beat NS&I’s stellar rate.
The bonds were pulled on 6 October due to soaring demand and NS&I reported that 225,000 customers signed up for these products.
James Blower, founder of website Savings Guru says: ‘Given we know from their reports it has been seeing outflows on some other products it is entirely possible that they got more than the £7.7billion in and this offset outflows from other products.’
He adds: ‘Using the average challenger bank fixed rate deposit balance of around £40,000, it would suggest NS&I received about £9billion on the one-year deal.
‘The alternative is they saw a lower average balance, say £30,000, and the rest came from small inflows on Premium Bonds and other products.
‘My best guess is they got something just over £8billion on the one-year deal, gained less than £100million on Premium Bonds and saw outflows on other products.’
NS&I’s decision to launch the one-year bonds at this rate was met with ire from the rest of the savings market – namely, as it rarely heads to the top of the best buy tables.
Industry body UK Finance slammed NS&I for distorting the bond market after it withdrew the products.
NS&I is designed to raise cost effective funding for the Government – neither of which the 6.2 per cent one-year rate did as it was ‘way over the odds’ according to Blower.
Andrew Hagger, founder of personal finance website MoneyComms says: ‘Around 225,000 one year bonds were taken up before the 6.2 per cent rate was pulled, so this will be the main reason for this surge in new money.
‘NS&I doesn’t normally operate this way but it needed to draw in funds to meet its government targets and so took this aggressive stance which will have hurt the rest of the savings market as providers could not compete.’
By contrast, households withdrew £700million from banks and building societies in September the Bank of England’s report reveals.
Hagger expects NS&I inflow figures will tail off now that its 6.2 per cent deal has gone, while Blower says: ‘NS&I has been trending at negligible inflows and we expect that trend to return now this product is gone.’