What are NS&I savings and how do they work? Which NS&I account is best for you? Learn all about government backed National Savings and Investment accounts.
National Savings and Investments, or NS&I, is a government-backed savings account. They're popular because NS&I savings, unlike bank savings, have no limit on the amount protected by the government. Everything you save with NS&I is protected by the government, because you're in effect lending money to the government. National Savings and Investment offer some products like ISAs and children's bonds that are tax-free.
NS&I is government backed, so 100% of all the savings you put in is secure. This is contrary to private banks that are only guaranteed up to a maximum of £85,000 per organisation should the bank go bust.
That means that if you and your partner had a joint account, with £100,000 in a traditional bank or building society that went out of business, you could lose up to £15,000.
If you had your savings in a National Savings and Investment account you wouldn't lose any of it. Banks and building societies are protected by the Financial Services Compensation Scheme (FSCS), whereas NS&I are protected by the government.
There are a range of products offered by NS&I including savings accounts, Cash ISAs, Premium Bonds, income bonds and Junior ISAs.
If you're looking to find the best National Savings account there are a number of different options for you to choose from.
If you're looking for a Cash ISA that is 100% secure, you could consider the National Savings and Investment Cash ISA. This is a Cash Individual Savings Account in which all your money grows tax-free and all interest earned is free from tax. That means you don't need to tell the taxman anything about your earnings in an ISA account.
Like all ISAs the amount of money you can put in your cash ISA is capped. (The current cash limit you can put in is £20,000 in the 2020/2021 tax year). Once you have opened a Cash ISA you can top this up and put in more each year, up to the annual limit.
National Savings only has a Cash ISA – it doesn't offer an investment ISA, sometimes known as a Stocks & Shares ISA. So bear in mind that if you put all your £20,000 allowance into a Cash ISA, you will not be able to open a Stocks & Shares ISA with a different provider within the same tax year.
Premium bonds allow you to invest up to £50,000, but the way they reward you for your savings is more like playing the lottery than traditional savings. You can start to buy Premium Bonds with a minimum investment of £25.
Premium bonds don't pay you any traditional interest, but instead enter you into a prize draw. These prize draws occur monthly and the typical prize is £50, but you could win up to £1 million.
However, while that may sound great there's no guarantee of winning anything. As there's no typical interest paid, the longer your money stays in a premium bond, the more it loses to inflation, unlike an index-linked account.
Like other types of National Savings products, Premium Bonds offer 100% security for your money. You can buy them as a gift for a child under 16, but they don't pay a regular income, nor do they provide any form of guaranteed returns.
You can open a National Savings & Investments Junior ISA (JISA) for your child or grandchild and invest up to £9,000 in the current tax year (2020/21).
Under the investment rules, you're not allowed to withdraw any money until the child reaches 18. The interest rate paid is variable, but all the money grows tax free. You can transfer an existing Junior ISA or Child Trust Fund (CTF) into a National Savings Junior ISA.
You can invest from £500 to £1 million into income bonds, and there's no penalty for withdrawing your money. The interest rate paid is variable and paid monthly. Although your money is secure, NS&I don't always pay the highest interest rates. So if you're looking for the highest rate of interest it's a good idea to shop around first to look at comparable rates on the market.
This's an Individual Savings Accounts for adults and you can invest from £1 up to the ISA limit of £20,000 in the current tax year (which runs from April 6 2020 to April 5 2021).
All the money grows tax free in your Direct ISA and you can transfer in existing Cash ISAs if you so wish. Again, it's good to compare other ISA providers to check whether NS&I is offering a competitive rate.
With the National Savings & Invest Direct Saver you can save from £1 up to a maximum of £2million and your money is protected. There's no penalty to withdrawing your money, and you don't need to give notice.
With the National Savings & Investment Investment Account you can deposit a minimum of £20 to a maximum of £1 million. The interest rate paid is variable, but there's no penalty for withdrawing your money.
Whilst the main attraction of NS&I is the fact that your savings are protected, it's worth remembering that savings in traditional banks, building societies and credit unions are also covered, although not to the same extent.
The Financial Services Compensation Scheme (FSCS) provides cover of £85,000 per financial institution, so you only really need to worry about coverage if you have higher levels of savings.
Even then, spreading your savings between different financial institutions will increase your level of coverage (and your paperwork unfortunately). Just make sure that you haven't got two accounts with the same financial organisations, as some banks operate under different brands and you would only be covered up to the maximum of £85,000.
The other main benefit to NS&I savings is that they're tax-free, and easy to set up.
However traditional ISAs are also tax free, and the only limit is the annual cap (£20,000 for 2017/18). If you're willing to put less than that in per year most ISAs will offer competitive rates in comparison to NS&I schemes.
ISAs and Junior ISAs are both tax-free, so long as you don't close down your account. However, most people have a tax allowance, which enables them to earn up to £1,000 in interest before they have to pay any tax. This is known as the Personal Savings Allowance.
The Personal Savings Allowance (PSA) is the amount of money you can earn in interest from savings accounts before you have to pay tax on it. In the 2020 to 2021 tax year this allowance is £1,000 if you're a basic rate taxpayer.
In other words, you can earn up to £1,000 on your savings before you have to pay any tax. For most people, this is quite a large allowance because interest rates are currently low and the amount of interest paid by banks and building societies is low.
For higher rate tax payers, the allowance falls to just £500 a year, and for those people who pay additional rate tax, the PSA falls to zero.