Here's A Top Savings Deal From NS&I
September 2005
Over on the LearnMoney.co.uk site we warned people to beware of Alan Sugar selling tax-free saving plans because many of the accounts actually fared worse than those that levied tax! In effect people who didn't do their research were being conned by the government. (Click Here for the article)
NS&I Does Offer Some Good Products Though
With High Street banks and building societies taking the micky by dropping interest rates on a large proportion of their savings accounts by up to 0.6% versus the recent Bank of England rate cut of only 0.25%, savvy savers are scouring the market place for better deals.
And whereas many of the National Savings & Investments (NS&I) plans are totally useless the Index Linked Certificates are certainly worth exploring. Remember that any money put with the NS&I is actually safer than with a bank because they're backed by the government who in turn controls the printing presses. So if all else fails they can just click the button and print you out a wedge of nice clean and crisp £50s!
The advantage of the Index Linked Certificates are that they match any increase in the rate of inflation, as measured by the Retail Price Index, or RPI. They also pay a tax-free return of 1% on top, provided that no cash is withdrawn before the end of their fixed-term period.
- Minimum investment is just £100, maximum £15,000 per issue
- The current offering is the 38th Issue (5 years) and 10th Issue (3 years)
- Children above 7 are also eligible to purchase them
The Inflation Effect Should Not Be Discounted
Inflation has been very low for the last several years but it's certainly picking up. Inflation also tends to run in cycles and some economists are now forecasting that the era of low-inflation is over for the time being. Prices rises in oil and the general service industry in general are not helping and the RPI now stands at 2.9% per year (It's updated monthly and of course can move both ways). This means that if you put £100 cash under your mattress today, it would only be worth £97.10 in a year's time (or £86.30 over a 5 year period)
The NS&I's bonds therefore offer a government backed promise to preserve the real value of your capital.
Some Simple Financial Workings
- At today's inflation rate, assuming it goes no higher, the 5 year certificates offer basic rate tax payers around 4.88% gross
- Higher rate tax-payers would need to get 6.5% gross to match these risk free returns!
- The return on the 3 year certificate is 6.42%
Summary
If you're looking for an excellent yield then certainly consider the NS&I's Index Linked Certificates, especially if you're worried about rising inflation. It is interesting to note that many financial advisors don't mention investments such as these to their clients, perhaps the fact the NS&I doesn't pay 'bounty commissions' to IFAs has something to do with it.
The only downside to Index Linked Certificates is that money is locked up for either 3 or 5 years but then the potential yields more than make up for this. Of course, savvy savers have long known the advantages of spreading their savings around and having a mixture of instant access, tax-free, and other assorted accounts.
Bottom line, chase those yields because the banks are getting stingier every month.....
See Also
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