New inflation-linked savings certificates likely to sell out ‘in weeks’

A new release of tax-free, inflation-beating certificates from National Savings & Investments (NS&I) could sell out in a matter of weeks, advisers have warned.

NS&I, the government’s savings arm, has reintroduced these popular index-linked savings products after taking them off the market for nearly a year. The certificates will pay savers 0.5 percentage points more than the rise in the retail prices index (RPI) over 5 years, on sums of up to £15,000, tax free.

Financial advisers said they were “surprised but pleased" by the level of return, which will make the certificates the only savings products that can guarantee to beat inflation for all taxpayers.

NS&I closed its fixed-rate and index-linked certificates to new money in July 2010 after fears that their popularity was distorting the market, making it more difficult for banks and building societies to attract deposits that could be used to fund lending.

As well as offering market-beating tax-free returns, NS&I guarantees all money deposited by a customer, rather than the £85,000 limit that applies to other institutions.

Savers currently face a choice between losing money in real terms in cash accounts, or taking on more risk in search of better returns from investments.

The highest interest rate paid on a five-year fixed-rate conventional savings account is 5.05 per cent, while the best five-year cash Isa pays 5 per cent – both currently from Birmingham Midshires.

But if RPI inflation remained at its March level of 5.3 per cent, higher-rate taxpayers with the new NS&I certificate would receive annual returns equivalent to 9.67 per cent gross from an ordinary taxable account.

“Basic-rate taxpayers would need to find returns of above 7.25 per cent from a conventional account to match the certificates,” added Danny Cox at Hargreaves Lansdown.

Patrick Connolly at AWD Chase de Vere said that although the terms of the new issue were less competitive than previous offers, savers should invest sooner rather than later.

“There is a risk that the products may not be around for too long,” he said, “as demand may exceed supply.”

The certificates are available online from www.nsandi.com, by post or by telephone but not from the Post Office

Fixed-interest savings certificates, launched at the same time, will pay 2.25 per cent and are expected to be less popular.