The penalty will be 90 day's loss of interest, plus no index-linking in the year of encashment for Index-Linked Certificates.
This change won't affect existing Certificates until maturity. But when a customer decides to roll over maturity proceeds into reinvestment Certificates the new penalty will kick in.
How does this compare to now?
|No interest if you withdraw during the first year. Thereafter you receive the last anniversary value plus the bonus and any positive index-linking for each month held since then, which is generous.
||90 day's loss of interest and no index-linking in year of withdrawal. Potentially better in the first year but a higher penalty thereafter.|
|Fixed Interest Certificates|
|No interest if you withdraw during the first year. Thereafter the anniversary value is paid up to 3 months following that date, beyond that an extra 3/12th annual interest is paid for each complete 3 months held.
||90 day's loss of interest. Potentially better in the first year but a higher penalty is likely thereafter.|
|Children's Bonus Bonds|
|No interest if you withdraw during the first year. Thereafter interest up until withdrawal.
||90 day's loss of interest. Potentially better in the first year but higher penalty thereafter|
Should I now avoid these products?
Both Index-Linked and fixed Rate Certificates are not currently on sale. But if they come back onto the market, or you roll-over maturity proceeds, the new withdrawal penalty is disappointing - more so for Index-Linked. While you shouldn't arguably invest in these Certificates unless you plan to hold until maturity, the ability to withdraw early with minimal penalty has been attractive in these uncertain times. I don't think the new penalty is sufficiently severe to justify avoiding Index-Linked Certificates altogether, but it will likely deter those attracted to the option of getting out early if inflation falls.
Children's Bonus Bonds have never been very competitive and I think it's rare for money to be withdrawn before maturity. So while the new penalty is largely more harsh, it'll make little difference in practice.
Any other changes?
Some good news. It will be possible view and manage all NS&I fixed term investments online for new investments made after 20 September. Shame this can't be extended to existing investments too.
Why is NS&I doing this?
Standardising withdrawal penalties across the range makes like simpler for everyone. But I also have a sneaking suspicion that a lot of people have been withdrawing Index-Linked Certificates early following recent inflationary falls, so perhaps NS&I is keen to deter this on future Index-Linked Certificate issues (that's if there are any...).