National Savings and Investment Saving-Certificate
National Savings and Investment (NS & I) Fixed Interest and Index Linked Savings Certificates
National Savings and Investment (NS&I) offer a range of 100% secure savings products, some of which are completely tax-free. NS&I started off as part of the UK Post Office and is still completely backed by the UK government, unlike most other forms of savings account.
There are various ways of legally hiding your money from the taxman, such as ISAs (Individual Savings Accounts), Personal Pensions, VCTs and EIS schemes, Premium Bonds, but perhaps the simplest and safest is the Savings Certificate. These have been around for many years and are a government-backed saving account similar to a fixed term savings bond and available in index-linked or fixed interest varieties. What most people don't know is how much money can be hidden in these accounts: you can save £15,000 in each issue (maybe two fixed interest and two index linked each year) and these can be rolled over into new issues when they mature after three or five years.
National Savings and Investment Savings Certificates were withdrawn from sale in 2010, but it was announced by George Osborne, The Chancellor of the Exchequer, in the March 2011 UK Budget, that they will be relaunched in the 2011/2012 tax year, including both the fixed interest and the index-linked certificates. The index linked certificates were relaunched in May 2011 and are still linked to the more generous (and more realistic) RPI inflation and not the lower CPI figure used for most other government schemes such as pensions, but now just 0.5% above RPI and only available as a five year certificate. They may be withdrawn again if demand is too great, because as a state backed scheme they are not allowed to compete unfairly with other banks.
Update: NS and I Savings Certificates were again withdrawn from sale on 6th September 2011. There are still similar products available from the Post Office and other banks or building societies (although without the advantage of being tax-free)
Disclaimer: Information in this and other linked articles is unregulated and for general information only and is not intended to be relied upon in making specific investment decisions. Appropriate independent advice should be obtained before making any such decision.
So. Are they any good?
These certificates (like Premium Bonds) exist to lend money to the UK government so their competitiveness varies depending on how much trouble the UK government is in, but as long as the UK remains a AAA rated country (still true at the time of writing... Just) the certificates will remain one of the safest places to keep you money.
Tax Efficient Savings
Tax Free. Index-linked or Fixed Interest
The index-linked savings certificates are an easy way to protect yourself against inflation although an index linked Gilt ETF would also be a good alternative (e.g. iShares .... ) There are also other index-linked products from other providers which are not tax free (unless held in an ISA), but could provide better returns for non-tax-payers.
The standard savings certificates are an alternative to cash ISAs and while they are more restrictive than an ISA given that you will have to hold them for 3 or 5 years they do allow rather more money to be protected from the Tax Man.
NS and I index-linked savings certificate were removed from sale shortly before inflation started increasing rapidly in 2010, but in the 2011 Budget (23 March 2011) George Osborne, the Chancellor of the Exchequer announced that these very useful (and tax-free) savings products will be relaunched some time after April 2011 and that the value will be linked to RPI inflation rather than the lower CPI inflation figure now used for pensions. The index linked certificates were indeed relaunched in May 2011, but now just 0.5% above RPI and only available as a five year certificate. They may be withdrawn again if demand is too great, because as a state backed scheme they are not allowed to compete unfairly with other banks.
NS and I Savings Certificates were indeed withdrawn from sale on 6th September 2011
How Do NS and I Savings Certificates Work
Penalties for Early Withdrawal etc.
Are NS and I Savings Certificates For Me?
One thing to remember when comparing interest rates versus other products is that the RPI inflation figure that will be used to calculate your first year's interest is not today's figure, but the RPI figure in a year's time, so you have to guess what is going to happen between now and then. e.g. even if RPI remains above 5% for several months, if it then drops because the effect of the 2011 VAT increase drop out of the equation, or fuel prices go down etc. you could end up getting far less than you expected. If you cash in before the first year you will receive no index-linking or interest, but after that the index-linked part of the interest is calculated each month.
Savings Certificates (and Children's Bonus Bonds which are similar) need to be held for the full term (i.e. 5 years) to earn the full interest, with slight reductions for early access:
5-year Index-linked Savings Certificates 48th Issuevalue before 1st anniversary = Purchase price1st anniversary value = Purchase price + index-linking for year 1+ 0.25% of purchase price2nd anniversary value = 1st anniversary value + index-linking for year 2 + 0.35% of 1st anniversary value3rd anniversary value = 2nd anniversary value + index-linking for year 3 + 0.40% of 2nd anniversary value4th anniversary value = 3rd anniversary value + index-linking for year 4 + 0.65% of 3rd anniversary valuematurity value = 4th anniversary value + index-linking for year 5 + 0.86% of 4th anniversary value
So, if you want to use NS and I index-linked savings certificates as a one-year bond you will just get 0.25% + RPI