Investments  

Q&A: What NS&I products can offer for savers

Q: I currently hold some cash in a current account, which I would like to invest into a more efficient savings vehicle. I am particularly interested in the National Savings products, but I am concerned about the tax implications of these products. Can you please advise?

A: National Savings and Investments is one of the largest savings organisations in the UK, offering a range of savings and investments to over 25 million customers. All products offer 100 per cent capital security, because NS&I is backed by HM Treasury. Some of the products NS&I have are as follows (although they may not always be on general sale):

Fixed Interest Savings Certificates (no issues currently on general sale)

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These are lump sum investments for a set period of time called a ‘term’. For the length of the term you invest in, they earn interest at rates that are guaranteed from the outset. The returns from fixed interest savings certificates are tax-free – this means that you don’t have to pay any UK income tax or capital gains tax on the interest you earn. They may be wholly or partly repaid before maturity, so regular withdrawals can be made, however a penalty may apply. Since 20 September 2012, all investments made or reinvested on or after this date incur a penalty for early repayment equivalent to 90 days interest deducted from the amount being cashed in.

Index-linked Savings Certificates (no issues currently on general sale)

When on general sale these are subject to a minimum purchase of £100 and there is a maximum limit of £15,000 in each Issue per person. Each year their value moves in line with the retail prices index. If the RPI goes up at the anniversary of your investment (compared to the previous anniversary), so does the value of your certificate. But if RPI goes down, the value of your investment is protected and will not go down. As well as the index-linking, the investment also earns interest each year at a guaranteed rate. The returns from index-linked savings certificates are tax-free – this means that you don’t have to pay any UK income tax or CGT on the index-linking and interest you earn. They may be wholly or partly repaid before maturity, so regular withdrawals can be made, however a penalty may apply. Since 20 September 2012, all investments made or reinvested on or after this date incur a penalty for early repayment equivalent to 90 days interest deducted from the amount being cashed in. These are ideal for savers who wish to protect their capital in real terms.

Income Bonds

When you invest in income bonds you receive the interest as a monthly income – how much you receive depends on how much you have invested and the current interest rate. Your money will earn a variable interest rate, with no risk to your capital. However, with variable interest, you might find that the rate goes down meaning you would earn less interest. On the other hand, the rate could go up. Taking money out is also simple with no notice or penalty. Interest is paid gross, if you are a taxpayer you will need to declare you interest and pay any tax due.