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It's good news for savers as 4% rates return… and experts are predicting a stampede

The Personal Savings Allowance gives basic rate taxpayers their first £1,000 of tax-free annual savings interest.  Higher rate taxpayers receive £500

It’s good news for savers as rates return to 4%…and experts predict a run

Savers have been offered the best interest rates on a one-year national savings account since 2010.

Government-backed savings giant NS&I brought back its guaranteed growth bonds and guaranteed income bonds for the first time in three years.

Experts are already predicting they will be ‘very popular’ and could sell out, with NS&I refusing to guarantee they will be on offer for long.

Anna Bowes, financial expert at comparison website Savings Champion, said: “With the recent drop in the best fixed rates, these rates are competitive. They are likely to be very popular and could therefore be taken down quite quickly.

The accounts could pressure big banks to raise rates on their savings products. The only high street giants with comparable one-year fixed rates are Barclays paying 3.9% and Nationwide Building Society at 3.75%.

Savers have been offered the best interest rates on national one-year savings accounts since 2010

Savers have been offered the best interest rates on national one-year savings accounts since 2010

NS&I is a widely recognized name – over 22 million people hold premium bonds issued by NS&I.

New accounts can be opened with £500 and are guaranteed up to £1 million. This will make them popular with wealthy savers, as banks and building societies only cover £85,000 of savers’ money under the Financial Services Compensation Scheme.

The Guaranteed Growth Bond pays 4% interest on the anniversary of the account, while the Guaranteed Income Bond pays 3.9% in monthly income.

These are far from corresponding to inflation, which is currently at 10.5%. But the 4% rate is expected to be on par with the Bank of England’s base rate, which City experts say will rise by 0.5 percentage points today.

Andrew Hagger of comparison website MoneyComms said: “With interest rates at a different level from 12 months ago, savers can once again earn a meaningful monthly return in today’s market.”

NS&I accounts are not tax-exempt and could cause savers’ Personal Savings Account (PSA) to plummet.

The first £1,000 of all interest earned by basic rate taxpayers on savings is tax exempt.

On the Guaranteed Growth Bond, a balance over £25,000 would incur interest which would break this rule.

For higher rate taxpayers, the allowance is less than £500, meaning a deposit of £12,500 would cause the PSA to break.

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