Growth bonds, cash ISAs and premium bonds compared
A Guaranteed Growth Bond is best for cash you will not need before its end date, while a Cash ISA can be stronger when tax-free interest matters.
A Cash ISA is a savings account where interest is sheltered from income tax under the Individual Savings Account Regulations 1998, subject to the annual ISA allowance.
Premium bonds are not interest accounts
Premium Bonds and NS&I Guaranteed Growth Bonds both have UK Government backing through National Savings and Investments (NS&I). That makes capital security similar for ordinary savers, but the experience of earning a return is very different.
| Option | Return | Access to cash | Tax treatment | Best fit |
|---|
| NS&I Guaranteed Growth Bond | Fixed and guaranteed for its term | Normally none before maturity | Interest may be taxable | Known date and known return |
| Fixed-rate Cash ISA | Fixed for its term | Terms vary, often a charge applies | Interest is tax-free | Savings within ISA allowance |
| Premium Bonds | Prizes only, not guaranteed | Normally accessible | Prizes are tax-free | Flexibility and prize chance |
| Bank fixed-term bond | Fixed for its term | Usually restricted | Interest may be taxable | Rate shopping with FSCS cover |
An NS&I Guaranteed Growth Bond is offered under the British Savings Bonds range when NS&I has a live issue open. It is a form of fixed-term savings: you choose the available term, pay in the permitted amount and receive the rate fixed for that particular issue, provided you keep the money in place until its maturity date. Recent issues have commonly offered one- and two-year choices, but the rate, opening and withdrawal dates, eligibility rules, and minimum and maximum deposits are issue-specific.
Before applying, check the live product page rather than relying on an older comparison, especially if you are transferring a large cash balance or deciding how much emergency money to keep outside the bond.
Net returns depend on tax and term
Your net return is the interest left after any tax, not the AER shown in the advertisement.
A simple net-return example
The figures below are illustrations, not current NS&I rates. They assume a fixed 5.00% AER for one year, no other savings interest, and tax at 20% once the relevant allowance has been used.
| Deposit and term | Gross interest | Possible tax, basic rate | Final balance |
|---|
| £5,000 for 1 year | £250 | £0 | £5,250 |
| £20,000 for 1 year | £1,000 | £0 | £21,000 |
| £30,000 for 1 year | £1,500 | £100 | £31,400 |
| £50,000 for 1 year | £2,500 | £300 | £52,200 |
Growth bonds versus income bonds
Guaranteed Growth Bonds add interest to the bond balance, allowing compound interest, which means later interest can earn interest too. Guaranteed Income Bonds pay interest out at set intervals instead.
For money within your ISA allowance, compare the Cash ISA rate against the bond’s after-tax rate. For a basic-rate taxpayer whose allowance is already used, a 5.00% taxable rate becomes roughly 4.00% after 20% tax. If the Cash ISA pays more than that, it can be the better home for the same cash, even though its advertised rate is lower.
Choose by the money’s job, not the headline rate
Need cash soon?
Easy-access savings or Premium Bonds.
Want tax-free interest?
Check a Cash ISA first.
Can lock cash away?
Compare NS&I and bank fixed terms.
Then calculate the net return and check what happens at maturity.
Interest from a Guaranteed Growth Bond counts as taxable savings interest, unlike tax-free interest inside an ISA. The Personal Savings Allowance is generally £1,000 for a basic-rate taxpayer and £500 for a higher-rate taxpayer, while additional-rate taxpayers do not receive this allowance; eligibility can also depend on total income. The allowance applies across all eligible savings interest in each tax year, not separately to each account. Banks and NS&I normally provide information to HMRC, and tax may be collected through an adjusted PAYE tax code where appropriate.
People completing Self Assessment should include savings interest in their return, while anyone whose circumstances are unclear should check their HMRC position rather than assuming no tax is due.
A two-year illustration makes the effect of compounding clearer. At an illustrative annual equivalent rate of 5.00%, £10,000 left in a growth bond for two years would become £11,025 before tax (£10,000 × 1.05 × 1.05), so the gross interest is £1,025. A £20,000 deposit would become £22,050 before tax, producing £2,050 of gross interest. If a saver’s Personal Savings Allowance had already been fully used and all of this interest were taxed at 20%, the indicative tax cost would be £205 and £410 respectively, leaving net gains of about £820 and £1,640.
In reality, tax is considered by tax year and depends on when interest is credited, so use the current bond terms and your own income position for a final calculation.
Check maturity rules before locking savings
Maturity is the date your fixed term ends, and it needs attention before the day arrives.
Your choices may include taking the money, moving it to a new NS&I product, or following another instruction offered in the maturity notice. The exact options change between issues, as do the AER, minimum and maximum deposits, product withdrawal date and term length.
The reinvestment risk people miss
Reinvestment risk means that when your bond ends, new fixed rates may be lower. A fixed rate protects you during the term, not after it.
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A savings tracker notebook can help you record maturity dates, rates and tax-free ISA room in one place. It is most useful when you hold more than one fixed-term account.
- A clear place to note each bond’s maturity date and instruction deadline
- Space to compare gross interest with your estimated after-tax return
- A simple record of ISA subscriptions and accessible emergency savings
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A Guaranteed Growth Bond is not a main option if you may need the money without warning, have not built an emergency fund, can get a better net return inside your ISA allowance, or want long-term investment growth and accept market risk through a Stocks and Shares ISA. A Stocks and Shares ISA can fall in value, so it is not a substitute for secure cash.
Questions & answers
Are NS&I guaranteed growth bonds still available?
NS&I sells these products under the British Savings Bonds name when a current issue is open. Check NS&I’s live page because availability, AER and withdrawal dates can change without notice.
Do I pay tax on guaranteed growth bonds?
Guaranteed Growth Bond interest can be taxable if it exceeds your Personal Savings Allowance. A basic-rate taxpayer usually has £1,000 of allowance, a higher-rate taxpayer £500, and Cash ISA interest is tax-free.
Can I withdraw money from a growth bond early?
You should assume you cannot access the money before maturity unless the current terms clearly say otherwise. This differs from many bank accounts where an early-access charge may apply.
What happens if I miss the maturity instructions?
NS&I applies the default option stated in the maturity notice if instructions are not received by its deadline. Read that notice early because the default may not be a transfer back to your bank account.
Is a guaranteed growth bond better than Premium Bonds?
A Growth Bond is better if you need a known return and can leave the cash untouched for the term. Premium Bonds are better for accessible capital and tax-free prize potential, but they may pay nothing at all.
- Key point: A guaranteed rate is only valuable if you can leave the money until maturity.
- Compare taxable interest after the Personal Savings Allowance with tax-free Cash ISA interest.
- Premium Bonds protect capital and offer access, but never promise a return.
- Check the live NS&I issue and maturity instructions before committing your savings.
Related sources
These articles can help you explore the topic in more depth:
