Building society aims to fill NS&I gap

National Counties makes offer to savers

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A small building society has stepped in to offer cash savers a guaranteed return over inflation, after National Savings & Investments’ withdrawal of its popular index-linked certificates and amid continuing concerns over rising prices.

National Counties Building Society, based in Epsom, Surrey, will on Monday launch a tax-free individual savings account that pays interest of 1 per cent a year plus the change in the retail prices index (RPI) until autumn 2015.

The five-year savings deal is poised to be the only account on the market
with an inflation-beating guarantee.

Government-owned NS&I closed its RPI-linked certificates to new money last month following fears that strong take-up among savers would starve banks and societies of deposits and restrict their lending. The average savings account continues to pay interest of less than 1 per cent.

Were RPI to continue to rise at its latest rate of 5 per cent until 2015, National Counties’ Isa would give savers a total return of 5.82 per cent year.

In its quarterly inflation report published last week, the Bank of England raised its forecast for inflation over the next two years.

It warned that the consumer prices index (CPI) – which has generally risen at a lower rate than RPI – was likely to remain above its 2 per cent target rate into 2012.

Thereafter, however, the Bank expects CPI inflation to drop below target. July’s RPI and CPI figures will be announced on Tuesday

David Black of Defaqto, the banking analyst, described National Counties’ Isa as a “reasonable punt” for savers. With account holders tied in for five years, he said the offer should be compared with fixed-rate Isas, where the highest payer is 4.25 per cent for five years. Savers would be better off with National Counties, he said, if RPI averaged more than 3.25 per cent a year until 2015. He added that the new account was attractive to higher-rate taxpayers because of its tax-free status.

Even the highest rates on taxed savings deals are below 5 per cent. This means that none offers a real return – even relative to CPI – for 40 per cent taxpayers.

The society’s Isa is open to new savers as well as those wanting to transfer existing tax-free accounts from other banks and societies, although the offer will close by September 30 at the latest.

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