Inflation inflation inflation
Is now the time to protect your savings against inflation? The latest
figures from the Office for National Statistics shows prices rising by 4.4% a
year (on the Retail Prices Index). Even the Consumer Prices Index – which
ignores mortgages and some other things – is up 3.4% on a year ago.
If you have savings you will struggle to find rates even close to those –
and if you are a taxpayer you have to deduct a fifth from the rate quoted or two
fifths if you are lucky enough to pay higher rate tax.
So savings products that give you a real return on top of inflation are
beginning to look very attractive. Index-linked Savings Certificates from
National Savings & Investments give you a guaranteed 1% above inflation as
measured by the Retail Prices Index. The return is tax-free so they are
particularly attractive to taxpayers – and the higher the rate of tax you pay
the better. If you think inflation is going to stay at this sort of level or go
higher then index-linked certificates are looking very good for long-term cash
savings. Even the official Treasury forecast puts RPI at 3.25% for each of the
next five years, apart from a slight dip to 2.5% in 2011/12. Add 1% to those
rates and that is what you will get with index-linked national savings
certificates.
There are two choices. The 3-year certificate (20th issue)
pays 1% a year above inflation over the whole three years. You can cash it in at
any time after one year and still get inflation-proofing plus a smaller return –
at the rate of 0.85% per annum during year two and another 0.95% per annum
during year three. The 5-year certificate (47th issue) offers year by
year cash in values after the first year of inflation plus 0.75%, 0.85%, 0.9%,
and 1.15% per annum. It pays RPI inflation plus 1% a year compound after the
full five years. No interest or index-linking is paid if you cash in an
index-linked certificate before the first anniversary of buying it.
You can put up to £15,000 into each issue. These certificates are
fixed-term products and should be held for the full three or five years to get
the full return. They can be purchased in joint names by couples and can be
bought for children.
Find out more at
www.nsandi.com.
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