WITHDRAWN FROM SALE 19 JULY 2010 - existing savers may roll-over maturity proceeds into the same or another Savings Certificates issue.
The key with any savings is to beat inflation after tax. If you don’t then your money will gradually buy less and less in future compared to today.
However, most savings accounts pay paltry rates of interest and consistently lag inflation. And even if you do the smart thing by keeping your money in ‘best buy’ savings accounts, there’s still a chance of lagging inflation at times, especially if you’re a taxpayer.
So, on the surface, National Savings Index-Linked Certificates sound very appealing as they guarantee to be beat inflation tax-free. And, on the whole, they’re an excellent idea for some savers.
Anyone aged 7 or over can invest between £100 and £15,000 per issue and there are currently two issues, lasting for 3 and 5 years respectively. Over this term the Certificates promise to pay you the rate of inflation, measured by the Retail Price Index, plus an additional amount of interest. The return, which is tax-free, is calculated monthly but only paid at maturity, there’s no income option.
If inflation is negative (i.e. we experience deflation) then you’ll simply receive the additional interest, your money can’t fall in value.
Withdrawing your money before the end of the term is allowed, but you won’t enjoy the full promised return. During the first year you simply get back your initial investment, while in subsequent years you’ll receive a reduced return prior to maturity.
Because National Savings products are backed by the Government then all of your money is secure (well, as secure as the Government). Unlike banks and building societies there is no £50,000 cap on protection.
Should you consider NS&I Index-Linked Certificates? If you’re a taxpayer who’s happy to tie up savings for either 3 or 5 years and doesn’t require an income, then yes. There is a risk of low, or even negative, inflation over that period and returns may look less attractive relative to conventional savings accounts in times of higher interest rates. But using Index-Linked Certificates for a portion of your savings could be a sensible strategy to hedge against inflation.