NS&I Fixed Interest 4.92% p.a. for Higher Rate Tax Payers

Special_Saver2

The NS&I Fixed Interest Certificates might be of interest to some of you out there with money you want to lock away. They will probably only be of interest if you are a higher rate tax payer.

The 2 year certificate is currently offering a fixed rate of 2.95% p.a. tax free (which is the equivalent of 3.69% gross p.a. if you are a basic rate tax payer, and 4.92% gross p.a. if you are a higher rate tax payer).

The certificate actually pays 2.85% (3.56%, 4.75% equivalent for basic rate and higher rate tax payers respectively) for the first year and 3.06% (3.83%, 5.1%) for the second year.

So if you are a 40% tax payer, you could think of this either:
- as a 2 year fixed rate bond offering 4.92% p.a. or
- as a 1 year fixed rate bond offering 4.75% with the option of (automatically) extending for an extra year at a rate of 5.1%

You can deposit between £100 and £15,000 into the 2 year certificates. There is also a 5 year certificate (follow the same link above for details) into which you can deposit a further £100 to £15,000.

The main advantages of NS&I Fixed Interest Savings Certificates are:
- all your savings with NS&I are 100% backed by HM Treasury
- it is much easier to apply for NS&I savings certificates than most other fixed interest deposits - you can do it online or by telephone quite easily (as well as by post or in your local post office)
- you do not have to record the interest earned on your income tax return

The big disadvantage though is that if you cash in during the first year, you do not get any interest at all. After the first year, your interest gets added every 3 months so if you need to cash in early after the first year then, depending on your timing, you could lose up to 3 months interest or you could time it so you do not lose any interest at all (e.g. if you write in asking to cash in your certificate exactly 15 months after the certificate start date).

At least you cannot end up with less money than you started with! Some of the fixed interest deposit accounts from banks and building societies will charge you a penalty equivalent to 90 days or 180 days interest which means that if you withdraw your money for an unexpected emergency soon after opening the account then you might end up with less money than you put in originally.

Hopefully somebody will find this information useful. An interest rate equivalent of 4.75% for 1 year or 4.92% for 2 years seems quite attractive in the current environment.

I should stress though that the interest rate is 2.95% p.a. regardless of how much tax you pay, so if you are a non-tax payer or a basic rate tax payer then you will be better off with one of the fixed interest deals on Martin's Savings page.

SS2