National Savings & Investments (NS&I)
The origins of NS&I dates back to 1861, when the UK Government set up the 'Post Office Savings Bank'. Although the business (and name) has since changed
markedly, it remains government backed which in theory makes NS&I a very safe place to save.
NS&I tends to offer pretty average interest rates across its range of savings products, with the exception of its unique Savings Certificates. These come in two varieties,
Fixed Interest and Index-Linked. Both pay tax-free interest and the Index-Linked Savings Certificates can be particularly attractive as they guarantee to beat inflation as
measured by the Retail Price Index (RPI).
The most popular NS&I savings product is Premium Bonds, probably because they offer a relatively safe way to gamble.
How safe is my money?
Unlike conventional bank and building society savings accounts, NS&I is fully backed by HM Treasury. This means your money is 100% safe (or at least as safe as the
Government!), no matter how much you invest.
NS&I Premium Bonds
Introduced in 1956, Premium Bonds have grown to become the most popular 'savings' product in the UK of all time with over £40 billion invested.
Over 16's can save between £100 and £30,000, while parents and grand-parents can save on behalf of children. Each £1 saved buys a chance, currently 34,500 to 1, of winning a tax-free prize in each monthly draw.
The numbers of the winning bonds are randomly drawn by a computer system called 'ERNIE' (Electronic Random Number Indicator Equipment).
How much might you expect to win? Well, NS&I quotes an official 'Prize Rate', which is the annual return you'd expect if you owned every single Premium Bond.
However, in practice you'll probably receive less on your own holding. The 'Prize Rate' includes all prizes, yet the likelihood of winning the larger prizes is so slim
you'll almost certainly never win one. The lucky few who win a large prize will enjoy an annual return well above the Prize Rate, but at the expense of everyone else.
The odds of winning the £1 Million jackpot in the
February 2012 draw were around
60.5 billion to 1 for every £1
unit held.
NS&I notifies winners following each draw, but you can double check whether you have an unclaimed win on
their website.
Unlike many forms of gambling you can't lose your initial stake, so Premium Bonds do offer a safe way of having a 'flutter'. However, don't expect a big win and remember
that inflation will reduce the spending power of your initial stake over time.
The estimated number of prizes and their value for the December 2010 Premium Bonds draw is:
|
£1,000,000
|
1
|
|
£100,000
|
4
|
|
£50,000
|
9
|
|
£25,000
|
18
|
|
£10,000
|
42
|
|
£5,000
|
87
|
|
£1,000
|
1,051
|
|
£500
|
3,153
|
|
£100
|
30,895
|
|
£50
|
30,895
|
|
£25
|
1,686,424
|
NS&I Index-Linked Savings Certificates
Note: Index-Linked Certificates withdrawn from sale on 7 September 2011
Index-Linked Savings Certificates pay a fixed rate of tax-free interest over and above RPI (i.e. inflation) for a fixed period of time. Their attraction is that
they guarantee to beat inflation, after tax. As this should be the aim for any savings, these Certificates should be on the shortlist for taxpaying savers happy to tie up
their cash.
NS&I offers Savings Certificates as 'Issues', normally launching a new Issue every time it wishes to change the interest rate on offer. The minimum amount you can save in
each issue is £100 and the maximum £15,000 (minimum age is 7).
Interest is credited to the Certificate annually (on the 'anniversary'), but starts at less than the published rate and ends higher. The upshot is you receive the
published rate (as a total compounded return) provided you hold the Certificates until maturity. If you withdraw before then you'll receive less.
Provided you're happy to tie up your cash for the savings term, your dilemma should be whether the overall return will be better than more conventional savings
products (especially Cash ISAs, which are also tax-free). There's no way of knowing for sure, as inflation will invariably change over time. Calculating the expected
annual return based on current inflation can be a starting, but gauging which direction inflation is likely to move in future is far more important.
As the diagram on the left shows, Index-Linked Certificates avoid the risk of a shortfall if inflation outpaces savings account interest rates. But there's always
the chance a savings account will return more...
What happens if RPI falls? You can't lose money (compared to the last anniversary date) and you'll still receive the fixed interest part of the return.
NS&I Fixed Interest Savings Certificates
Note: Fixed Interest Certificates withdrawn from sale on 7 September 2011
These Certificates pay a fixed rate of tax-free interest for a fixed period of time. They are very straightforward and can sometimes be worthwhile for taxpayers thanks to
the tax-free interest on offer.
You should compare the equivalent annual gross rate of interest with the best deals on conventional fixed rate savings accounts from banks and building societies.
Other NS&I Products
While the above NS&I products are generally the ones most worth considering, there are others in the range:
| Product |
Tax-Free? |
Candid Verdict |
| Direct Cash ISA |
 |
A straightforward easy access cash ISA. Often pays a competitive rate so worth a look. |
| Investment Account |
 |
Easy access savings account that pays appalling rates of interest. Avoid! |
| Easy Access Savings Account |
|
Rates are usually poor versus 'best buys', look elsewhere. |
| Income Bonds |
|
Effectively a variable rate savings account paying monthly interest. Rates tend to be alright, but not exceptional. |
| Guaranteed Growth Bonds |
|
Straightforward fixed rate savings bonds that seldom trouble the 'best buy' tables. |
| Guaranteed Income Bonds |
|
Plain vanilla fixed rate savings bonds that pay a monthly income. Rates are usually off the pace. |
| Children's Bonus Bonds |
|
Fixed rate savings bonds for children. Tax-free, but few children are taxpayers and the rates are usually indifferent. |
NS&I Jargon
Here's some of the more common NS&I jargon you might come across:
| Chidren's Bonus Bonds | A National Savings fixed term savings product for children. Interest is tax-free and fixed. |
| ERNIE | The 'Electronic Random Number Indicator Equipment' used to draw the monthly prize numbers for premium bonds. |
| National Savings & Investments | NS&I is a government backed business that offers a range of savings products, most famously premium bonds. |
| Premium Bonds | A government backed savings product where the return depends on winning tax-free prizes in a monthly draw. |
| Savings Certficates | A National Savings fixed term savings product, available with a fixed rate of interest or a return linked to inflation. Returns are tax-free. |