The government last week increased rates on National Savings & Investments’ fixed-rate savings products, reflecting rising interest-rate expectations.

Rates went up by as much as 0.5 percentage points across products including its fixed interest savings certificates, index-linked savings certificates and its children’s bonus bonds.

NS&I fixed products are priced according to the yield on gilts, which are bonds issued by the government. These have increased recently as the City has priced in a lower chance that the Bank of England will cut interest rates because of persistent inflation.

The two-year fixed-interest savings certificate now pays 2.9%, up 0.3 percentage points. Returns are tax-free, so this is equivalent to 3.63% for a basic-rate taxpayer and 4.83% for a higher-rate taxpayer.

The rate on the five-year certificate has gone up by 0.25 points to 2.95%, or 3.69% for a basic-rate payer and 4.92% if you are in the top bracket.

NS&I products remain highly popular, even though savers can earn more elsewhere.

Earlier this month, NS&I cut rates on some of its variable savings products by up to 0.25 points to reflect April’s interest-rate cut. However, the rates outlook has changed dramatically since then. NS&I’s income bonds, investment accounts and easy-access savings accounts all had their returns reduced.

NS&I also reduced the value of prizes in its premium bond fund from £108.8m to £102.2m. The move means the odds of winning a prize drop from 21,000-1 to 22,000-1, while annual returns for someone with average luck who has the maximum £30,000 invested fall from 3.6% to 3.4%.

One in three of us have premium bonds, but experts say you would be better off with a high-interest savings account such as Chelsea’s easy access account at 6.1% with a minimum deposit of just £1.

There will be no change to NS&I’s variable-rate accounts and investments this time round.