NS&I: Guaranteed Growth Bonds or Income Bonds — the difference and which to pick

NS&I (National Savings and Investments) has a feature ordinary banks do not: your money is 100% secure through HM Treasury, not through the FSCS with its £85,000 limit. That is why large sums are often held here. But two similarly named products are easy to confuse, and they work differently.

What they share

Both Guaranteed Growth Bonds and Guaranteed Income Bonds are fixed-term savings with a fixed rate you know in advance. You cannot take money out of either before the term ends (there is only a 30-day cancellation window after you open it). Interest on both is taxable and counts towards your Personal Savings Allowance. You choose the term when you open the bond.

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Guaranteed Growth Bonds — interest builds up inside

Here interest is calculated daily and added to the bond itself on each anniversary. The money grows inside the bond rather than coming to you. You can only take it out when the term ends. This suits someone with a lump sum they do not need to touch: it simply grows to the end of the term.

Guaranteed Income Bonds — interest paid every month

This works the other way: interest is not rolled up but paid to you as monthly income. That suits people who want a regular flow from their savings — for example in retirement, as a top-up. The bond itself does not grow: you receive the interest in cash each month.

How to choose

The rule is simple. Want maximum growth and do not plan to touch the money — Growth Bonds, where interest adds to the balance. Want a regular monthly income from what you have saved — Income Bonds. In short: Growth is "let it grow and wait"; Income is "let it pay me each month".

Tax and protection

Interest on both is taxable income and reduces your Personal Savings Allowance in the relevant tax year. But NS&I's protection is total: HM Treasury guarantees 100% of your money, with no £85,000 cap as at ordinary banks. For large savings that is the main argument.

NS&I rates change — check the current figures and terms at nsandi.com before you open a bond.

In short

Two NS&I products with similar names work differently: Guaranteed Growth Bonds build interest up inside the bond and pay it at the end of the term; Guaranteed Income Bonds pay interest to your account every month. Both are fixed-term with no early access, interest is taxable, and the money is 100% backed by HM Treasury.