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Withdraw Index-Linked Certificates?

Saving | National Savings Helpful? 19

Asked by wrighty, submitted 22 February 2012.

Open Quote I invested the maximum in National Savings Index-Linked Certificates when they were opened. I am under the impression i can withdraw after April, what would be the return on £15,000 or would i lose out if i withdraw funds?End Quote

Answered by Justin on 02 August 2012

If you withdraw NS&I Index-Linked Certificates before the first anniversary you'll just get back your initial investment. But thereafter you'll receive the previous anniversary value, including the bonus, plus any inflation-linking for each complete month since then.

Assuming you own the 48th Issue the annual bonuses, which average 0.5% a year over 5 years, are:

1 - 0.25%
2 - 0.35%
3 - 0.40%
4 - 0.65%
5 - 0.86%

So, if you withdraw after the first anniversary but before the second you'll receive the rise in inflation (RPI) over the first year, the 0.25% bonus, any inflation-linking since the anniversary and your original investment.

To find out the current value of your Certificates you can use the interest calculator on the NS&I website.

Staying put will allow you to benefit from the higher bonuses in later years, but the inflationary outlook is probably far more important.

Inflation has been slowing recently thanks to falling oil prices and, to a lesser extent, food prices. Will this trend continue? Difficult to say as both oil and food prices are unpredictable, but I think average annual RPI growth of around 3% is not unreasonable over the next few years, indeed index-linked gilt yields suggest markets reckon it'll be closer to 2%.

If you withdraw and inflation is high that would be bad news, especially as NS&I still has its doors firmly closed to new Index-Linked Certificate investments. But staying put may lead to lower returns than a competitive savings account.

If you're a higher rate taxpayer I'd be inclined to stay put for now, even with lower inflation, as the tax-free returns will still likely outpace a taxable savings account. If a basic rate taxpayer it's a tougher decision, but I'd be inclined to stay put as hedge against other savings you may have. If a non-taxpayer then a fixed rate savings account could end up the better bet, although not a good idea if you might need to access the cash before maturity.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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Readers' Comments (2) - To post a comment please register or login .

Comment by wrighty at 6:52pm on 02 Aug 2012:

First time ive contacted with a personal investment question,was very satisfied with the fullness of the a ordinary retired person its nice to get this kind of help to some queries .
thanks justin.

Comment by justin at 10:03pm on 02 Aug 2012:

You're welcome, sorry it's taken me so long to reply. Took some time off following the birth of our daughter and a rather massive backlog of questions to plough through as result!