nsandi tax-free certificate vs hi-interest savings? which is better?

new

Can some one help please ?

trying to compare whether it is better for me to put £1000 [currently a premium bond] into a high savings account [eg. 6.30%a.e.r] or put into a tax-free index-linked certificate from NSANDI.
[ have used up mini-cash ISA allowance, so thats not an option]

is there a savings calculator that can compare these two products?

many thanks!

ps. or what is the best return on £1000 [preferably[if it pays more] tax-free; prepared to leave it untouched for 5 years] for a basic rate tax payer ?
suggestions/thoughts welcome! thanks you all![hopefully others might have a similar question]

isofa

Because the savings you mention at NS&I are linked to inflation it's not possible to say specifically the rate over a period of time in advance, because it depends what inflation does, but they will always be a good bet. At the moment their Index Linked Savings Certificates are very good, because of the current rate of inflation, they are good for standard rate tax payers, and extremely good for high-rate tax payers, because all gains are tax free.

But if you are a non-tax payer, you should be able to get 6.70% or a tiny bit higher gross in a one-year bond, which is a very good rate.

All will give better returns than your Premium Bond, unless of course you win the jackpot!

new

isofa wrote: »

Because the savings you mention at NS&I are linked to inflation it's not possible to say specifically the rate over a period of time in advance, because it depends what inflation does, but they will always be a good bet. At the moment their Index Linked Savings Certificates are very good, because of the current rate of inflation, they are good for standard rate tax payers, and extremely good for high-rate tax payers, because all gains are tax free.

But if you are a non-tax payer, you should be able to get 6.70% or a tiny bit higher gross in a one-year bond, which is a very good rate.

All will give better returns than your Premium Bond, unless of course you win the jackpot!

Thanks so much for your very helpful reply - as a basic rate tax-payer, will it be better or worse than a hi-saver at 6.30% a.e.r? or about the same, only tax-free?
[have probably won the odd £50 every other year on premium bonds - martin's article has made me re-think that they are not such a good bet!]

isofa

If you take the inflation rates from July 2007:

CPI = 1.9%, RPI = 3.8%

The NS&I Savings Certificates are index-linking (based on RPI) + 1.35%

So for last month (July 2007) the rate payable would have been 3.8%+1.35%=5.15% tax free (regardless of your own tax status).

As a basic rate tax payer, for July you'd obviously need to be getting 5.15% net (which is nearly 6.44% gross) to match it on a savings account.

If inflation goes up, the rate goes up, if it goes down, so does the rate on your savings certificates. So usually the rate fluctuates every month or so, which is why it's impossible to predict the rate over 12 months.

new

isofa wrote: »

If you take the inflation rates from July 2007:

CPI = 1.9%, RPI = 3.8%

The NS&I Savings Certificates are index-linking (based on RPI) + 1.35%

So for last month (July 2007) the rate payable would have been 3.8%+1.35%=5.15% tax free (regardless of your own tax status).

As a basic rate tax payer, for July you'd obviously need to be getting 5.15% net (which is nearly 6.44% gross) to match it on a savings account.

If inflation goes up, the rate goes up, if it goes down, so does the rate on your savings certificates. So usually the rate fluctuates every month or so, which is why it's impossible to predict the rate over 12 months.

:A thank you for that explanation - has helped a lot! much appreciated

isofa

You're welcome

Jonbvn

isofa wrote: »

CPI = 1.9%, RPI = 3.8%

The NS&I Savings Certificates are index-linking (based on RPI) + 1.35%

Just previous to July RPI was 4.8%. This made the certs a no-brainer. Alas, things change.....

Sillychuckie

How often do NS&I re check the current RPI and therefore change the effective interest rate payable on the ILCS?
Is it fixed at the start of each yearly period according to the RPI at the time of purchase (and each subsequent year on the same date)... or is it adjusted more regularly?

isofa

It's index-linked, so it will change when the RPI rate changes.

Otherwise you could buy an issue say at 3.8% and if it didn't change for the entire issue and inflation rocketed to say 10%, the savings would badly perform against inflation - and the whole point of the savings certs is that they are inflation proof!

I don't know if they make the change immediately when RPI changes, but I assume it's almost immediate otherwise it wouldn't be allowed to carry the index-linked status.

exel1966

So is it really worth tieing funds up for 3 or 5 years as an awful lot can happen within that time?

SussexResearcher

Yes, if you want no risk at all but want to stay ahead of inflation to protect your money in real terms. The current returns are RPI Inflation + 1.35% over both 3 and 5 years.