When the chancellor announced a new Investment Guaranteed Growth Bond last Autumn, it sounded like a good idea. This week the bond became available to savers, and I’ve taken a look to see if you should get one.
Savings rates suck. Most people are getting far below 1%, whether in an ISA or normal savings account. Some people will even be getting as low as 0.05%! So the idea behind the new bond is to help people get a little bit more from their money.
How the Investment Guaranteed Growth Bond works
The interest rate for the Investment Guaranteed Growth Bond is 2.2%, which is pretty much the highest rate you can get from a savings account.
This rate is fixed for three years, but that also means you need to keep your money in the bond for three years too. Take the money out early and you’ll lose the last 90-days interest.
You can save a maximum of £3,000 and after three years this would earn you £302.39. The minimum you can save is £100.
The IGGB is offered by National Savings & Investments (NS&I), and though it uses the word “investment” it’s not a stocks and shares savings account. The initial deposit you put in will stay the same.
These accounts are only open for the next year, closing for new applicants on 10th April 2018.
You have to be over 16 to open one. The account is online only, meaning you can’t apply by post or over the phone – possibly ruling out some people
Is it any good?
Well, yes. And no.
The 2.2% rate is better than you can get in most places, but inflation is currently at 2.3% and expected to rise further this year. So any money in the bond will be losing value.
Plus with your cash locked away for three years, you could lose out if interest rates were to rise elsewhere.
But if you don’t want the fuss of moving money around and just want a better rate than you currently have, you won’t get an easier way to save at this rate.
Where you could put your money instead
I think you should look at a current account. I’m not going to write in detail about these again (check out my article on why Cash ISAs are dead instead), but my top picks are:
- Nationwide FlexDirect – 5% on £2,500 – rate only for one year
- Tesco Bank – 3% on £3,000 – rate guaranteed for two years
The downside of these accounts compared to the Bond is you may have to set up Direct Debits in the account, and you often need to pay a certain amount of cash in each month.
If you’re saving from each paycheck rather than in a lump sum, I’d get a regular savings account from the links of Nationwide, M&S or Santander. All pay 5%, though you do need a current account with the bank in order to open one of these accounts.