NS&I has slashed rates on its bonds. Here’s why I’m not surprised – and why I’d still grab one: SYLVIA MORRIS

National Savings and Investments (NS&I) yesterday cut the rate it pays savers signing up to its fixed-rate bonds; but I still think these are worth checking out.

The rate on a one-year Guaranteed Income Bond, which pays your interest monthly instead of at the end of the year, dropped from 4.13 percent to 4 percent.

The one-year Guaranteed Growth Bond is currently down from 4.2 percent to 4.07 percent.

Anything above 4 percent for one year seems like a good bet to me. But remember, if you take out a fixed-rate bond, you won’t get your money back until maturity, even if interest rates rise (which is unlikely).

Over the past few weeks other providers have reduced the rates they pay, so NS&I bonds have floated at the top of the best buy charts.

It wouldn’t surprise me if other providers now lower their rates even further – and that’s already started.

Just hours after the NS&I cut, Virgin Money cut its one-year fixed-rate bond rate from 4.11 per cent to 4.01 per cent for new savers.

Union Bank of India UK’s largest one-year bond yields 4.33 percent, followed by Chetwood Bank with 4.26 percent.

Yesterday, two-year NS&I Guaranteed Growth Bonds fell to 3.98 percent, three-year bonds fell to 4.02 percent and five-year bonds fell to 4.05 percent.

For Guaranteed Income Bonds, the rates are 3.91 percent, 3.95 percent and 3.98 percent, respectively.

But don’t be tempted by a bond that will last more than a year in NS&I until you check your tax situation. The weird thing about NS&I is that you don’t have access to the interest until the end of the term.

As a result, all the interest you earn over the entire term will be included in your personal savings allowance in the year the term ends.

The allowance gives basic rate taxpayers the first £1,000 of interest they earn in a tax year tax-free, while higher rate taxpayers get £500.

I’m not surprised that NS&I lowered its rates. The latest figures published by the Bank of England this week show that NS&I generated revenue of £2.45bn in November; This is the highest monthly figure in more than two years.

This brings the total raised so far in the financial year to £7.57bn. It has a target of bringing in £13 billion in revenue for the full year. If he kept making the same amount of income for the next four months, he would miss his biggest goal.

The good news is that those with one-year Guaranteed Growth Bonds and Income Bonds currently maturing will still make more than they did in the last 12 months.

This time last year, the one-year Growth Bond paid 3.95 percent, while the Income version paid 3.88 percent.