NS&I launches new British Savings Bonds paying up to 4.6% if you lock your cash away – but how do they stack up?

It's the first time in 15 years that the state-backed savings provider has offered two-year and five-year fixed-term accounts to new customers. It says the new accounts will help it to meet its target for deposits, as set by the Government.

How NS&I's British Savings Bonds work

Here are the key need-to-knows:

• You can deposit from £500 up to £1 million. As with all NS&I savings, every penny you put in is totally safe, as it's backed by the Treasury. This is one of NS&I's main draws – it won't go bust unless the UK Government does. Though, under the savings safety rules, all UK-regulated savings accounts are protected anyway up to £85,000 per person, per institution.
  

• There are now three options: a two-year bond paying 4.6%, a three-year bond paying 4.35% and a five-year bond paying 4.1%. If you have an existing bond that's maturing, you can also choose a one-year bond paying 5.15% (this ISN'T available to newbies).
  

• You can't withdraw your money until the end of your fixed term. Meaning you'll have to wait two years, three years or five years to access your cash depending on which account you choose, so only lock away what you definitely won't need access to.
  

• You can choose when and where to have the interest paid. The Guaranteed Income Bonds pay interest monthly directly into your linked current account, while the Guaranteed Growth Bonds pay interest annually into the bond itself – meaning you can only access the interest when your bond matures.
  
  This is important if you need to pay tax on savings interest, as it's when you can access your interest that counts for tax purposes. Unlike NS&I's Premium Bonds, where any prizes you win are tax-free, interest you earn from British Savings Bonds IS taxable.
  
  Choosing the annual interest option means you'll earn interest on the interest. However, because you can only access it in one lump sum at maturity, it could mean you end up paying more tax (depending on your circumstances). For more on this, see our savings interest examples.
  

• Despite their branding, there's nothing revolutionary about these bonds. NS&I says your savings will be "invested back into supporting the UK" – but, as NS&I itself points out, this is the case for ALL of its account types (including Premium Bonds).
  
  That's because whenever you save with NS&I, you're effectively lending your money to the Government – and the funds raised by the British Savings Bonds aren't being ring-fenced for a specific use.

You can still earn more elsewhere – but the gap has narrowed

While NS&I's British Savings Bonds are still easily beaten by fixed-term savings from other providers, the gap has narrowed. For example, when the three-year Bond first launched in April, it paid 4.15%, while the top three-year fixed account elsewhere paid 4.67% – £5.20 more a year for each £1,000 saved. Now, that difference is down to £3.10 per £1,000 saved.

This makes the bonds more competitive, especially if you have very large amounts to save (above the £85,000 per person, per institution protection you get with other UK-regulated accounts) and want the total safety you get with NS&I.

Here's how the British Savings Bonds stack up compared to other savings accounts: