The NS&I fixed-rate savings bond has officially launched.
The three-year Investment Guaranteed Growth Bond, which offers a rate of 2.2% on deposits between £100 and £3,000, is expected to prove hugely popular with savers.
However, it falls short of the current 2.3% rate of inflation, meaning anyone who applies will see their money lose value in real terms in the short term at least.
What's more, the fact that it's an online-only account – the first such product from NS&I – will come as a blow to the 5.3 million adults who have never used the internet.
How it can be beaten
If you are chasing the best rate for your savings then the new NS&I Investment Bond can be beaten by eight other deals right now, which are set out in the table below.
£1 (max: £2,500)
|Tesco Bank Current Account||Current account||3%||£1 (max: £3,000)|
£1 (max: £1,500)
Bank of Scotland Classic Account with Vantage
£3,000 (max: £5,000)
Ikano Bank Fixed Five-Year Saver
|Five-year fixed-rate bond||2.35%||£1,000|
Milestone Savings Fixed Term Deposit
|Five-year fixed-rate bond||2.30%**||£10,000|
Secure Trust Bank Fixed Rate Bond 5 Year Term (Issue 31)
|Five-year fixed-rate bond||2.26%||£1,000|
Bank of London and the Middle East Premier Deposit Account
|Five-year fixed-rate bond||2.25%||£25,000|
*Rate will change to 2% on balances up to £5,000 from 11 June 2017
** Expected rate
Nationwide's FlexDirect account pays 5% on balances of up to £2,500, fixed for a year. The only condition is you need to pay in at least £1,000 a month.
Bank of Scotland's Classic Account with Vantage pays 3% on balances of between £3,000 and £5,000 so long as you pay in £1,000 a month and have two direct debits set up.
However, this rate will be cut to 2% on all balances up to £5,000 from 11 June 2017.
Tesco Bank's Current Account pays 3% on balance of up to £3,000, guaranteed until April 2019, provided you pay in £750 a month and set up three direct debits.
The TSB Classic Plus account pays 3% variable on balances of up to £1,500, but you'll have to credit the account with £500 a month.
Fixed-rate savings accounts
If you are after a fixed-rate and don't mind locking your cash away for a longer period, you can also get a better rate than the NS&I bond with a five-year fixed-rate savings account.
Ikano Bank has the highest rate at 2.35%. But while you can save more, it does offer less flexibility.
Unlike typical fixed-rate bonds, the NS&I Investment Bond allows early withdrawals, subject to a penalty of 90 days' interest.
If you have £3,000 invested that means you'd pay £16 to access your cash.
If you think rates are likely to rise and are wary of locking up your money for a long time the NS&I Investment Bond is a better option as Ikano Bank doesn't allow you to access your cash before the five-year term is over.
If you're willing to take on risk
All the above examples allow you to beat the NS&I bond's 2.2% rate completely risk-free, but if you are comfortable with risk you could get far better returns from peer-to-peer lending (P2P).
A quick look at the loveMONEY P2P best buy tables reveals you can earn 7% fixed for three years with the Assetz Capital Green Energy Income Account.
If you're happy to save for at least five years, investing in the stock market traditionally outperforms savings in the long run.