NS&I has unveiled new iterations of its one-year British Savings Bonds, offering enhanced interest rates in what one finance expert has hailed as defying “the trend in a falling market”.

The British Savings Bonds are fixed-term editions of NS&I’s Guaranteed Growth Bonds and Guaranteed Income Bonds, open to both fresh customers and those with maturing bonds.

Starting from Thursday, July 24, the updated rate for the one-year Growth and Income Bonds is set at 4.18% AER (annual equivalent rate), a bump up from the previous 4.05% AER.

NS&I retail director Andrew Westhead said: “I am pleased that we can offer savers – both new and those with our existing one-year bonds which are about to mature – this new opportunity to save. In launching this new issue, NS&I continues to balance the interests of its savers, taxpayers and the broader financial services sector – and to work towards its annual net financing target.”

Backed by the Treasury, NS&I guarantees absolute security for funds held with it. The Guaranteed Growth Bonds and Guaranteed Income Bonds cater to clients seeking a fixed return over a set term of one, two, three or five years.

Early withdrawals are not permitted with these fixed-term accounts. Savers must commit at least £500 and are allowed to invest up to £1 million per person in each issue.

After the fixed-term period, savers can choose to either withdraw their cash or reinvest it into a new term. Guaranteed Growth Bonds are a lump-sum investment that accrues a fixed rate of interest over a specified period, with interest added to the bond on each anniversary of the investment.

Guaranteed Income Bonds are a lump-sum investment that provides a monthly income at a fixed rate of interest over a set period. Earlier in July, NS&I introduced new versions of its two, three and five-year British Savings Bonds with lower rates than previously offered.

The rate on a Junior Isa was also reduced from 4.00% to 3.55% from July 18. Many experts anticipate a further cut in the Bank of England base rate this year, which could be another setback for savers.

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “NS&I has bucked the trend in a falling market and boosted the rate on its one-year bonds. Elsewhere, savings have been gradually dropping across the board. Fixed terms have generally held up slightly better than easy access accounts, but they’re still trending downwards.

“NS&I itself cut the rate on its bonds fixed for two, three and five years earlier this month – along with cuts to the Premium Bond prize rate in August. It’s not worth getting too excited about, though. The one-year bond went back on sale in April this year, and the rate at the time was a dismal 4.05%.

“NS&I has to offer a rate somewhere in the middle of the pack, so it doesn’t tend to be market leading, but clearly at this rate, it wasn’t pulling in enough cash. The rise today still leaves it well behind the market leaders – which offer more than 4.5% – but it will be hoping it has done enough to retain savers with maturing one-year bonds and to attract new cash.”

Laura Suter, director of personal finance at AJ Bell, said: “The rate on offer is a far cry from the original one-year British Savings Bond that launched two years ago which proved to be a sell-out success, being pulled from sale after just five weeks.

“But back then savers were offered a generous 6.2% – a rate that now looks like a relic from another era. With interest rates edging down and other providers trimming their fixed-rate deals, NS&I has clearly tried to find a middle ground that will be attractive enough to draw in some money but not so generous that it’s swamped by demand.

“For some savers, the government-backing of NS&I will be the main draw. With full protection on deposits up to £1 million, it removes the hassle of having to split savings across multiple banks to stay under the FSCS (Financial Services Compensation Scheme) limit of £85,000.

“But for others, that safety net comes at a cost. You can get better returns elsewhere if you’re willing to forgo the government guarantee.”