NS&I vs Gilts — Which UK Government-Backed Investment Is Right for You?
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Key Takeaways
Both NS&I and gilts are fully backed by HM Treasury — they carry identical government credit guarantees with no cap.
Gilts offer a CGT exemption that makes discount gilts particularly tax-efficient for higher-rate and additional-rate taxpayers.
NS&I products provide capital certainty with no market price risk, while gilts fluctuate in value until maturity.
Long-dated gilt yields at 4.45% currently exceed most NS&I product rates, though Premium Bonds offer tax-free returns averaging around 4%.
A combined approach — NS&I for short-term savings and emergency reserves, gilts for longer-term income and tax planning — suits most UK investors.
British savers looking for government-backed safety face a genuine choice: National Savings & Investments (NS&I) products or UK government gilts. Both carry the full backing of HM Treasury, making them among the safest investments available in the UK. But the similarities end there — their returns, access, tax treatment, and suitability for different investors diverge significantly.
With gilt yields at 4.45% for long-dated conventional bonds and NS&I offering a range of fixed and variable-rate products, the current environment gives investors real options. Understanding the practical differences can help you choose the right vehicle — or combination — for your savings and investment goals.
NS&I Products — What's Available
Gilts — How They Differ from NS&I
UK Long-Term Gilt Yields 2025-2026
Tax Treatment — The Critical Difference
Risk Comparison
Which Should You Choose?
Returns Comparison (Illustrative Annual)
Conclusion
NS&I and gilts are both backed by the UK government, but they serve different financial needs. NS&I offers simplicity, capital certainty, and tax-free Premium Bond prizes — ideal for savers who want zero market risk. Gilts offer higher yields, CGT exemption on gains, and the flexibility to match maturities to your investment timeline — better suited for investors willing to accept market price fluctuations.
For many UK investors, the optimal approach combines both: NS&I products for accessible savings and emergency reserves, and gilts (directly or via funds) for longer-term income and tax-efficient investing. With government bond yields at their most attractive levels in over a decade, there's never been a better time to understand both options.
Disclaimer: This content is AI-generated for informational purposes only and does not constitute financial advice. Consult qualified professionals before making investment decisions.
National Savings & Investments is the UK government's savings bank, offering a range of products directly to individual savers. All deposits are 100% backed by HM Treasury — not the Financial Services Compensation Scheme (FSCS) limit of £85,000 that applies to bank deposits.
Income Bonds pay a variable interest rate, currently competitive with the best easy-access savings accounts. Interest is paid monthly and the rate can change at any time. The maximum holding is £1 million per person, making them suitable for large cash balances that need government backing.
Premium Bonds are the UK's most popular savings product, with over £120 billion held by savers. Instead of paying interest, your holdings are entered into a monthly prize draw with a tax-free prize fund rate of approximately 4.0%. The minimum holding is £25 and the maximum is £50,000 per person. Returns are entirely tax-free but vary with luck.
Fixed Rate Savings Bonds (when available) lock your money for 1-5 years at a guaranteed rate. NS&I periodically adjusts rates and availability based on its funding target from HM Treasury.
Green Savings Bonds fund government-certified green projects and offer a fixed rate for a 3-year term.
The key advantage across all NS&I products is simplicity — no brokerage account needed, no market price fluctuations (except for Premium Bond prize variability), and the government guarantee covers the full amount with no cap.
UK government gilts are bonds traded on the London Stock Exchange. When you buy a gilt, you're lending money to the UK government in exchange for regular interest payments and the return of your principal at maturity.
Conventional gilts pay a fixed coupon (currently ranging from under 1% to over 4% depending on the issue) every six months. The key difference from NS&I fixed-rate products is that gilts have a market price that fluctuates daily. If you hold to maturity, you'll receive the full face value (typically £100). If you sell early, you might receive more or less depending on how interest rates have moved.
With long-term gilt yields at 4.45% as of January 2026 — down from 4.69% in September 2025 — gilts are offering attractive income. The downward trend in yields (which means rising prices for existing gilt holders) reflects the broader easing cycle, with the Bank of England following the Federal Reserve's lead in cutting rates.
Access: You need a stockbroker or investment platform (Hargreaves Lansdown, AJ Bell, Interactive Investor, etc.) to buy gilts. Minimum purchases are typically £100 nominal. Alternatively, gilt funds and ETFs offer pooled exposure.
Maturity range: Gilts are available with maturities from a few months to over 50 years, giving you far more flexibility than NS&I's fixed-term products. You can match your gilt maturity to your investment timeline precisely.
Liquidity: Gilts can be bought and sold on any trading day at market prices. NS&I products have their own access terms — some allow instant withdrawal, others impose early withdrawal penalties.
Tax treatment is where NS&I and gilts diverge most sharply, and it can be the deciding factor for many investors.
NS&I tax treatment:
Premium Bond prizes are completely tax-free — no income tax, no capital gains tax
Income Bonds pay interest that is taxable as savings income, but paid gross (no tax deducted at source)
Fixed Rate Bonds and Green Bonds also pay taxable interest gross
All NS&I interest counts toward your Personal Savings Allowance (£1,000 for basic rate, £500 for higher rate, £0 for additional rate taxpayers)
Gilt tax treatment:
Coupon payments are taxable as savings income, similar to NS&I (counted toward Personal Savings Allowance)
Capital gains on gilts are completely exempt from Capital Gains Tax (CGT)
This CGT exemption is the key tax advantage of gilts over other bonds
The CGT exemption on gilts creates a powerful strategy. If you buy a gilt trading below its face value (a discount gilt), part of your return comes as a tax-free capital gain when the gilt matures at £100. For example, a gilt maturing in 2 years trading at £96 with a 1% coupon delivers a total return of approximately 3.1% per year — but the £4 capital gain is tax-free, and only the 1% coupon is taxable.
For higher-rate and additional-rate taxpayers who have used their Personal Savings Allowance, discount gilts can deliver better after-tax returns than NS&I Income Bonds or even Premium Bonds, despite apparently lower headline yields.
Both NS&I and gilts carry the UK government's credit guarantee, but the risk profiles differ in important ways.
Credit risk: Identical. Both are obligations of HM Treasury. Unlike bank deposits (capped at £85,000 FSCS protection), both NS&I and gilts are backed in full regardless of amount.
Interest rate risk: Very different. NS&I products have no market price — your capital is always returned at face value (though variable rates may change). Gilts have market prices that move inversely with interest rates. If you hold a long-dated gilt and yields rise by 1%, the market value could fall 10-20% depending on maturity. This only matters if you sell before maturity — holding to maturity eliminates this risk.
Inflation risk: Both are vulnerable unless you hold index-linked gilts (see our index-linked gilts guide). A conventional gilt paying 4.45% with inflation at 3% delivers only 1.45% in real terms. NS&I variable rates can adjust upward with inflation, offering partial natural protection.
Liquidity risk: NS&I varies by product — some offer instant access, others require notice or impose early withdrawal penalties. Gilts can always be sold at market price, but that price may be below what you paid.
Reinvestment risk: When an NS&I fixed-rate bond matures, you might not be able to reinvest at the same rate. Similarly, when a gilt matures, prevailing yields may be lower. Building a ladder of gilts with staggered maturities helps manage this.
The practical difference: NS&I is more like a savings account (capital-preserved, variable or fixed returns). Gilts are investments (market-priced, fixed income, with potential for capital gains or losses).
The right choice depends on your tax situation, investment horizon, and comfort with market fluctuations.
Choose NS&I when:
You want capital certainty with no market price risk
You're a basic-rate taxpayer with unused Personal Savings Allowance
You want the simplicity of a savings product (no brokerage needed)
Premium Bonds suit your preference for tax-free prize-based returns
You have large cash balances exceeding the £85,000 FSCS limit and want full government backing
Choose gilts when:
You're a higher-rate or additional-rate taxpayer who can benefit from the CGT exemption on discount gilts
You want to lock in a specific yield for a specific time period (maturity matching)
You need flexibility to sell at any time at market prices
You want income from a diversified portfolio with access to the full gilt yield curve
You plan to hold in an ISA or SIPP where tax differences are neutralized
Consider both when you have different pots of money serving different purposes. NS&I for your emergency fund and short-term savings (capital certainty), gilts for your medium-to-long-term portfolio (yield optimization and tax efficiency).
With the current rate environment — gilt yields at 4.45%, the Fed cutting to 3.64%, and the Bank of England likely to follow — both options offer meaningful returns after years of near-zero rates. The 10-year to 2-year US spread at +0.60% confirms the normal yield curve has returned, and a similar dynamic in the UK means longer-dated gilts are paying more than short-term NS&I rates.