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Blow to savers as NS&I announces more changes to returns

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Written by: Paloma Kubiak
26/10/2018
Half a million older savers with NS&I Index-linked Savings Certificates will see returns fall next year as it moves to use a less-generous measure of inflation.

The government’s saving arm NS&I announced that from 1 May 2019, it will use the Consumer Price Index (CPI) measure of inflation rather than the Retail Price Index (RPI) for its Index-linked Savings Certificates.

While a subtle move from one measure of inflation to another, there are major consequences for the 507,000 customers – typically in their 60s – holding this product.

This is because CPI tends to be lower than RPI so while savers will still gain inflation-beating returns, they will be less generous for those who come to renew into a new term from May 2019.

NS&I said by indexing new investments to CPI, it will save £610m over the next five years.

John Glen, Economic Secretary to the Treasury, said: “We know that savers who hold these products really value the inflation protection they give. The transition to CPI for new investments over the next five years retains this, while balancing the needs of the taxpayer.”

Earlier this year, NS&I cut the £1m savings limit on its popular growth and income bonds to just £10,000 to meet ‘financing targets’ and just last month, it controversially cut the rate on its Direct ISA from 1% to 0.75%.

Index-linked Savings Certificates

Index-linked Savings Certificates are lump sum investments where returns are added on the anniversary or at the end of the two, three or five-year term.

They’re tax-free and currently pay a fixed rate of interest at 0.01% on top of the rate of inflation.

The product was removed from sale in September 2011 but can be renewed by existing customers at maturity.

As at 31 March 2018, the total value held in this product was £19.9bn.

No similar accounts available

Anna Bowes, co-founder of independent savings advice site Savings Champion said customers will be disappointed that the returns on future certificates will be lower but they are likely to still be valuable products to retain – especially for those who pay tax on their other savings.

“Being linked to CPI, while providing a lower return than currently, will still provide valuable inflation-protected tax-free returns. And the saving to the taxpayer will be welcomed by those who have not had the opportunity to open any index-linked certificates, since they have not been available to new savers for several years – only those who already held them,” she said.

Bowes added there are no similar accounts currently available and only 24 fixed-term savings accounts which currently match or beat inflation, for those who don’t pay tax on their savings.

“Basic rate taxpayers who are already using their Personal Savings Allowance would need to earn a minimum of 3% gross (2.40% net) to stay in line with CPI – and only a couple of interest paying current accounts offer rates as high as this,” she said.

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