Savers worried about soaring inflation were thrown a lifeline last week with the return to the market of National Savings & Investments’ (NS&I) inflation-linked savings certificates. This inflation-beating product proved so popular last year that it had to be pulled in order to prevent the government-run NS&I from totally dominating the savings market. We’ve been waiting for them to return. And now they have.
The new NS&I index-linked savings certificates offer an interest rate that is linked to the Retail Prices Index (RPI): you are paid the change in RPI plus 0.5% annually as long as you leave your money for five years. Only 0.5% above RPI might sound a little measly – on old NS&I products it was 1% – and there are products on the high street that offer a larger percentage above RPI.
But the key difference is that returns on NS&I accounts are free from tax. So to beat this account on the high street – using the current RPI figure of 5.2% – a basic-rate taxpayer would need to find an account paying 6.5%, a 40%taxpayer 8.7% and a 50% taxpayer 10.4%. Sadly, there are no accounts out there paying anything close to that. The best rate on the market is 5% for a five-year bond with the AA or 4.5% for a five-year cash Isa with Northern Rock. So NS&I is certainly offering savers a great deal.
You can invest up to £15,000 in the account and the rate is guaranteed for five years, but you don’t necessarily have to lock your cash up for five years. In order to see any return on your investment you will need to leave your savings untouched for at least a year. But after that you can withdraw your money (as long as you take all of it at once). If you cash in your certificate on an anniversary date then you will get your original investment plus the interest for that year and any previous years. If you cash in at any other point in the year (after the first year) you’ll get the most recent anniversary value plus any increase in inflation plus the fixed rate of interest for each complete month since the anniversary. So if inflation starts to slumpafter that first year or interest rates rise and there are better deals elsewhere you can pull your cash out without penalty.
But you will need to act fast. The certificates may not be around for long. “Our aim is to keep savings certificates on sale for a sustained period of time and to enable as many savers as possible who wish to invest to do so,” says Jane Platt, chief executive of NS&I. But there are already reports of jammed phone lines and a deluge of applications so it might not be long before NS&I are once again forced to pull the deal.