Some lucky NS&I savers have earned 11.11% – but is now the time to switch? SYLVIA MORRIS
While rising inflation has severely eroded savers’ nest eggs in recent years, there is one lucky group that has not been affected.
They are holders of Index-Linked Savings Certificates of National Savings and Investments.
What makes these savings accounts special is that they promise to always outperform inflation, even if it is only by 0.01 percentage points.
When inflation rose to 11.1 percent at the end of 2022, they paid out a whopping 11.11 percent to holders.
Top returns: Index Linked Savings Certificates from National Savings and Investments promise to always beat inflation – although only by 0.01 percentage points
But with inflation back down to 2 percent, these accounts are paying less than half the amount savers could receive in the highest-paying fixed-term bonds.
So the question is: should savers keep them or throw them away?
Index-Linked Savings Certificates are available in terms of two, three or five years. They are no longer for sale, but those who have them can renew them for another term when they reach maturity.
Deciding to extend was an easy decision two years ago. Inflation was at 9.4 percent, while the top two-year bond yielded 2.8 percent.
Certificates paid 9.41 per cent. A £10,000 worth of certificates maturing today is worth £11,095 – equivalent to a healthy 5.44 per cent a year tax-free. That’s the same as the average interest rate over the two-year period.
An equal amount saved in a three-year bond maturing now would yield an even better return of £12,102 – a hefty 7 per cent.
Over a five-year period, the return is lower, but still 4.8 per cent tax-free. So if you were to repay the loan today, your £10,000 would be £12,440.
But now the decision is harder. Interest rates have skyrocketed — the best two-year bonds from Close Brothers and Cynergy Bank pay 5.06 percent.
Three-year bonds pay up to 4.81 percent (United Trust Bank and Cynergy Bank). All look much better than the 2.01 percent offered by certificates.
Recent regulatory changes have also thrown a spanner in the works. You can no longer get your money during the term of certificates that have been extended since July last year.
But if you don’t renew, you lose the benefit of this unique account. And it still has benefits.
Should inflation rise again, those with protection will be very lucky. The interest is also tax-free and will be on top of your cash Isa allowance or any Premium Bond gains.
If you have these certificates I would be inclined to hold on to them, but only if you are willing to tie up your money.
> Choose one of these flexible top ISAs and save on tax on your everyday savings