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Government 2.2% savings bond goes on sale

£20 notes Image copyright Getty Images

A new government savings bond, offering what the Treasury says is a "market leading" rate of 2.2%, is being launched online on Tuesday.

The Investment Guaranteed Growth Bond (IGGB) was promised by the chancellor in last year's Autumn Statement.

Savers will be able to invest between £100 and £3,000 at any time over the next 12 months.

The return exceeds the best three-year bond advertised on the Moneyfacts website, which is currently 2%.

Anyone depositing £1,000 can expect to earn about £67 in interest, if they make no withdrawals over the three-year period. Those investing the full amount of £3,000 can expect to make about £202.

At the time of the Autumn Statement, the chancellor said that two million people were likely to benefit from the new bond.

'Scant reward'

However, critics have described the interest rate as "underwhelming".

"The chance to earn 2.2% in today's depressed savings market may look appealing at first glance, but it's not that generous in the scheme of things," said personal finance expert Andrew Hagger of Moneycomms.

"With the maximum balance set at just £3,000 and having to lock your cash away for three years, it's scant reward for savers who have had to endure rock-bottom rates at the expense of borrowers for far too long."

Two years ago, so-called pensioner bonds offered a return of up to 4%.

The interest will be subject to income tax, although basic rate taxpayers can earn £1,000 a year in savings interest without paying tax. Higher rate taxpayers have a £500 allowance.

The new bond is only available online, from the National Savings and Investments (NS&I) website.

Anyone over the age of 16 can apply.

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