DEAL KLAXON- er, for National Savings?

13 May 2011

nsandi_white_largeThat's right folks. Friday the 13th it may be, be April 1st it's not. National Savings and Investments (NS&I), the Government backed savings organisation have just unveiled a shiny new 5 year bond at a whopping rate of interest. And the poor banks are a bit miffed.

Best known for Premium Bonds, NS&I's new five-year savings bonds will pay interest based on the RPI (note not the lower CPI now used for everything else) – currently 5.3% – plus an average rate of 0.5%. This is a great rate as it is, but when you factor in the bonds' tax-free status, this becomes an incredibly attractive proposition for higher-rate taxpayers.

You can deposit from £100 up to £15,000, and children over the age of seven are also allowed to open an account (although I don't know many higher rate tax paying primary school children). You simply need a UK bank account to deposit the money. The  bond runs for five years but, if inflation falls, savers can withdraw their cash after one year and still pick up the RPI interest rate plus a small bonus. Smiles all round then.

Unsurprisingly, NS&I is anticipating huge demand, as there are hardly any other savings products available that can match, or beat, inflation, and none that can offer that high return tax free (outside an ISA). You can see why the high street banks are upset- to match this rate, a higher-rate taxpayer  would have to find a taxed savings account paying 7.5%  a year (assuming RPI stayed at 4% over the next five years).

Jane Platt, NS&I's chief executive, said: "Our aim is to keep savings certificates on sale for a sustained period of time and to enable as many savers as possible who wish to invest to do so. With this in mind we will be offering a five-year term, only available direct from NS&I. We understand fully that we will see very high demand for index-linked savings certificates." And this isn't just bravado- last July NS&I had to close their savings bonds for new applications following unprecedentedly high demand.

This time George Osborne has given the green light for £2 billion pounds worth of investment. And the high street banks know exactly where that cash is going to be withdrawn from.

A spokesman for Nationwide Building Society said: "As a government-backed organisation, NS&I has the advantage of being able to offer products tax-free, which obviously other providers cannot. This has the potential to distort the market and is a matter of concern." For you perhaps. Customers, on the other hand, are laughing their way to the Post Office.

Adrian Coles, director general of the Building Societies Association, mindful of the complete lack of sympathy anyone has for banks, tried a different, guilt-trip style tack, "The impact on those private sector institutions seeking to raise funds to lend to first-time buyers and other mortgage borrowers should not be underestimated."

So the choice is yours- bag yourself a great tax-free rate on a savings account or leave your money languishing in the bank in case some first time buyer wants a mortgage. Er...


TOPICS:   Tax   Banking


  • Great e.
    Great piece and very relevant because most of your readers are higher-rate tax payers. Bring out the shock tactics journalism klaxon more like. or did you just copy and paste that bit from the daily mail?
  • no m.
    @ Nationwide spokesman, “As a government-backed organisation, NS&I has the advantage of being able to offer products tax-free, which obviously other providers cannot." So how would he describe ISAs? (Currently offering about bugger all%)
  • Sam T.
    Gosh @Great editorial I didn't realise you *knew* the intricacies of most of our readers' financial situation. The rate beats inflation, whether you are a higher rate taxpayer or not. So it is relevant to anyone who would like to earn a return on their money that means their money is worth more in five years than it is today. If that is not you I apologise. You are clearly on the wrong website.
  • Nick T.
    Oh, boo hoo Nationwide. My savings account there was worth 0.35% before I saw sense and withdrew it.
  • eddiex
    Banks go apeshit,government caves in and issues a new bond at lower rate after it has all the money it wishes to borrow. Happened before
  • Philips W.
    Shame their web site makes your eyes hurt

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