PROTECT YOUR SAVINGS
You can protect your savings against inflation and get a bit more on top.
National Savings & Investments has recently issued a new version of its popular
index-linked National Savings Certificates. But act quickly. I recommended the
previous issues here in April last year and the week time I repeated the advice
in July they sold out.
The new certificate is not quite such good deal as that was. But it is
still the best savings deal on the market. It pays interest equal to the Retail
Prices Index (RPI) plus 0.5% a year if you keep the certificate for its full
five years. Interest is added each year using the index for two months before
the date it is added. So if you buy them in June the interest will be added in a
year based on the RPI ten months earlier for April 2012. The RPI is currently
5.2%. But don’t expect quite such a high return. The official forecast for RPI
is between 3.5% and 3.8% over the next four years. So you could easily be
earning 4% or more on your savings over the whole five years.
Don’t worry if you are unhappy tying your money up for five years. The
certificates can be cashed in at any time. You will get no interest if you do
that within a year. But once you have held them for a year you get interest at
the rate of inflation plus a little bit more on top – 0.25% after one year,
0.35% for year two, 0.4% for year three, 0.65% for year four, and 0.86% for year
five. That averages out at a compound rate of 0.5% a year for the full five
years. But even after one year it is a great return.
Because the interest is paid tax-free the certificates are a much better
deal for taxpayers than those who do not pay tax. And the higher the tax-rate
you pay the better the deal. If you get 4% overall that is the same as earning a
taxable 5% if you pay basic rate tax, 6.7% if you pay higher rate 40% tax and 8%
if you are one of the lucky 300,000 whose income is more than £150,000 a year
and pay tax at the rate of 50%. But at any tax rate it is the best deal in town.
You can put up to £15,000 into these certificates – and as little as
£100. Couples can of course buy up to £15,000 worth each and you can buy them
for children too.
Apply online at
www.nsandi.com but you cannot buy the certificates at the Post Office.
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