NS&I Fixed Rate Savings Certs

Bogof_Babe

Is it allowable to take out a new issue of a 2-year NS&I Savings Cert while an existing one is still running? I have the maximum £15K in one that I took out last September, but I see there is a new issue available now (in fact I appear to have missed a couple of subsequent issues, as the one I have was issue 37 and the current one is issue 40 ). I would like to put another £15K in, but not sure if this is allowed due to them being tax free.

I know the interest rate is rubbish but I need it to be tax free and have already used my ISA allowance.

jem16

As long as it is a different issue number then you can have as many as you like.

Bogof_Babe

Oh thank you so much for the quick reply. That's sorted then .

jem16

Are you sure you want the fixed rate certificates? You would be much better with the index-linked certificates.

Fixed rate = 2.9%
Index-linked = 5.45%

Bogof_Babe

I'm a complete coward about stock market linked investments. Can't these NS&I ones "go down as well as up", like anything to do with shares can? Also, doesn't index linked mean in line with BoE Base Rate, which is on the way down by all accounts?

How can they quote 5.45% when no-one knows what the markets will be doing?

jem16

They are nothing to do with the stockmarket. They pay interest.

The index-linked certificates are guaranteed to keep ahead of inflation with an interest rate of 1.35% above the RPI (inflation rate). The inflation rate is currently 4.1% so 1.35% above that is 5.45% tax-free. This is equivalent to 6.81% for a basic rate taxpayer or 9.08% for a higher rate taxpayer.

So basically it's all about keeping your savings ahead of inflation which the index-linked certificates are guaranteed to do.

With your fixed rate certificates at 2.9% you are falling behind with inflation so you are actually losing money.

EalingSaver

Your confusing with investments that are linked to some form of equity index (e.g. FTSE 100 etc).

in this case the index in question is the RPI (Retail Prices Indicator(?)) i.e. the (or rather 'a') measure of inflation. The basis of the interest rate you receive is RPI + x%. You an look on it as a variable interest rate product, where the variable is the current RPI rate. Your capital is entirely secure as it would be in a normal savings account (arguably more so, as there is nothing more 'gilt edged' as goverment issued investement vechicles).

Bogof_Babe

Thanks both, I think I understand a bit better now. It's quite confusing for a novice, but I will give it serious consideration.

So could I have one of each types at the same time? I can't understand how the Gov't can afford to lose all the tax they would make if these were normal savings products.

nilrem_2

Bogof_Babe wrote: »

So could I have one of each types at the same time? I can't understand how the Gov't can afford to lose all the tax they would make if these were normal savings products.

You can have up to the max amount allowed in as many different issues as you wish per person.

Don't worry about the government they get plenty to use from other sources and by buying NS savings you are actually giving them your cash to use.

cheerfulcat

Bogof_Babe wrote: »

I can't understand how the Gov't can afford to lose all the tax they would make if these were normal savings products.

NS&I products are a way for the government to borrow at very cheap rates - the tax lost is essentially made up for by the interest they don't have to pay.

ManAtHome

Yes, you can "max out" on every issue for Nat Savings if you like, but fixed-rate ones haven't been good value for a long time now - a standard taxable account over 5% is better even for a higher-rate taxpayer.

With the index-linked, you have to keep them for a minimum of a year to get the RPI, then it's a bit like a stepped rate savings account - you get a bit more each year until they mature (both the 3 and 5 year average out to 1.35% + RPI per year). Also, you're not limited to just one investment, just a max of £15k so you could for example make 3 investments of £5k at different times - each one of these would be treated as a separate term (the 2nd and 3rd £5k carry on running after the first £5k has matured).