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National Savings and Investment Saving-Certificate

Updated on December 13, 2014

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National Savings and Investment Savings Certificates were withdrawn from sale in 2010, but it was announced by George Osborne, The Chancellor of the Exchequer, in the March 2011 UK Budget, that they will be relaunched in the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 They may be withdrawn again if demand is too great, because as a state backed scheme they are not allowed to compete unfairly with other banks.

Update: NS and I Savings Certificates were again withdrawn from sale on 6th September 2011.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 Issue

value before 1st anniversary = Purchase price

1st anniversary value = Purchase price + index-linking for year 1+ 0.25% of purchase price

2nd anniversary value = 1st anniversary value + index-linking for year 2 + 0.35% of 1st anniversary value

3rd anniversary value = 2nd anniversary value + index-linking for year 3 + 0.40% of 2nd anniversary value

4th anniversary value = 3rd anniversary value + index-linking for year 4 + 0.65% of 3rd anniversary value

maturity 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

Money

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    • Andy-Po profile image
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      Andy 5 years ago from London, England

      @dannystaple: The best cash ISA rate I have found this year, so far is the AA one at 3.5%. It doesn't beat (real) inflation, but it is tax free. Only a couple of days left though.

    • profile image

      dannystaple 5 years ago

      It is a shame these aren't available, although there does seem to be at least a cash ISA product which I could use, with better returns - I'd probably choose another institution for that, perhaps less safe with higher rates. That less safe doesn't really count now with government backed bank accounts. I'll have to find out about the non NS&I savings of a similar kind. It'd be great to see a return. Perhaps with a good savings product offering, the treasury could have some working capital without needing quite so much in the way of austerity measures. This is probably my own naive view... Anwyay - thanks Andy.

    • profile image

      TomSmith1 5 years ago

      Thanks for sharing it with us. I totally like your information. The best part I like is it is up to date totally

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    • Andy-Po profile image
      Author

      Andy 6 years ago from London, England

      index-linked NS and I savings certificates have been withdrawn from sale again.

    • profile image

      Rowanshayne 6 years ago

      Nice Post ! Thanks for sharing a good information about Kreditvergleich

    • Andy-Po profile image
      Author

      Andy 6 years ago from London, England

      The index-linked NS and I savings certificates are now available for sale again, but possibly just for a limited time. They are tax free, but now only track RPI + 0.5% over a five year period. It is possible however to get your money out after a year with index-linking (although bear in mind that it will be the RPI figure in a year's time - i.e. this year's VAT rise will no longer influence the figure - that is used to calculate your interest and not today's figure - currently 5.2%)

    • Andy-Po profile image
      Author

      Andy 6 years ago from London, England

      @quotes4: Very true. Just because an investment is tax-free it may still be a poor investment. The latest issue of index linked bonds will however beat inflation by 0.5% no matter what rate of tax you pay.

    • profile image

      quotes4 6 years ago

      As an IFA I need to to keep up to date on National Savings and Investments as I need to take these low risk products into account for my clients portfolios. Although low risk the performance on these is quite poor and in many cases much lower than inflation.

    • UKGhostwriter profile image

      UKGhostwriter 6 years ago

      Excellent lens! - well done

    • profile image

      andylightfoot 6 years ago

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    • MargoPArrowsmith profile image

      MargoPArrowsmith 6 years ago

      If anything here is called 'national' people -the right- have a stroke

    • Andy-Po profile image
      Author

      Andy 7 years ago from London, England

      National Savings and Investments have, today, withdrawn both their Index-Linked and Fixed Interest Savings Certificates. A temporary measure, presumably.

    • ElizabethJeanAl profile image

      ElizabethJeanAl 7 years ago

      Very informative.

      Thank you.