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  • Index-linked Savings Certificates (NS&I ) – should you renew them?

    From 1 May 2019 National Savings & Investments (NS&I) are changing the inflation measure they use to calculate returns on their inflation-linked savings certificates from the Retail Price Index (RPI) to the Consumer Price Index (CPI).

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

    From 1 May 2019 National Savings & Investments (NS&I) are changing the inflation measure they use to calculate returns on their index-linked savings certificates from the Retail Price Index (RPI) to the Consumer Price Index (CPI).

    This might not sound like a significant change, but in February 2019 RPI was measured at 2.5%, whereas CPI was 1.9%. This means that based on current inflation levels savers in these certificates could see a significant drop of 0.6% in their rate in the near future.

    Index-linked savings certificates – a quick reminder

    Index-linked savings certificates are tax-free savings bonds issued by NS&I. Terms on offer are two, three and five years, and for each term they pay a return of the inflation rate plus an extra 0.01%.

    While this is hardly going to set pulses racing, it’s one of the few guaranteed ways savers can make sure their money keeps pace with inflation. Plus any returns are tax-free, and as with all NS&I savings they are backed by a government guarantee.

    These certificates were closed to new savers in 2011, but any existing certificates have continued and can be rolled over at maturity. Currently around 500,000 people use them for their savings.

    According to NS&I the change from RPI to CPI is “in line with the government’s switch to use CPI as the standard measure for UK inflation”. It’s worth noting that the change from RPI to CPI won’t affect certificates currently running, but if you have any that mature on or after 1 May then you’ll get a return tracking CPI rather than RPI if you roll over.

    Are they worth sticking with?

    We still think index-linked saving certificates are a good, tax-free, way to save. If inflation were to rise sharply at any point then they would shelter the spending power of your cash. But you’re now paying a price for this security.

    Below we’ve looked at what rates you’ll get on these certificates, compared with fixed term savings currently on offer in our Active Savings service. You can see the rates on offer from fixed term savings are significantly better, although remember these rates are taxable and you can’t access your cash until maturity.

    With fixed term savings the rate won’t ever change either so if inflation did rise they wouldn’t offer any extra shelter, unlike index-linked savings certificates.

    NS&I index-linked savings certificates interest rates

    Term Previous NS&I rate (based on RPI) New NS&I rate (based on CPI) Example fixed term savings rates (AER/Gross)
    2 years 2.51% 1.91% 2.25%
    3 years 2.51% 1.91% 2.40%
    5 years 2.51% 1.91% 2.55%

    Source: ONS and HL, correct as at 17/04/19

    The personal savings allowance lets you earn up to £1,000 in interest each year before any tax is due. The amount of tax you’d pay on savings interest will depend on your personal circumstances.

    Of course everyone’s situation is different, so there’s no one correct course of action. If you’re not sure what you should do it might be worth taking professional advice.

    How much could your savings be worth in future?

    Our savings calculator lets you find out in seconds how much extra interest you could make if you move your cash across to a higher rate.

    Please note this calculator assumes rates don't change, no other deposits or withdrawals are made, and any interest is compounded each year.

    £
    years
    %
    %
    You could be better off by £0
    Total savings value with current rate £0
    Total savings value with new rate £0

    An alternative home for your cash savings

    Whatever you decide to do, it’s always worth looking at all your cash savings to make sure you are earning a good rate to help your money keep pace with inflation. But keeping a close eye on best buy tables and regularly moving your money from bank to bank to earn a good rate can be a lot of hassle, and most people just don’t have the time.

    That’s why we’ve created Active Savings. It lets you choose savings products from a range of different banks and building societies, all through the convenience of one online account. There’s easy access and fixed term savings up to 5 years to choose from, with rates up to 2.55% (AER/Gross), letting you manage your savings in a way that suits you.

    And once you’re set up there’s no paperwork or forms to fill in, so you can move you money around with just a few clicks.

    So why not join Active Savings and improve the way you save?

    Discover Active Savings

    This article is aimed to help you make informed decisions but this is not personal advice. If you’re not sure whether a savings product is right for you, seek advice. Inflation reduces the spending power of cash over time.

    AER stands for Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year. The AER allows you to easily compare the interest rate on savings products. You may earn less than the AER if your money is not invested for as long as a year. AER is calculated based on a Gross interest rate, which is before any tax is deducted.

    Gross means the interest rate before any tax is deducted. Interest is paid gross. You are responsible for paying any tax due to HM Revenue & Customs.

    The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Payment Services Regulations 2017 with firm reference 751996 for the provision of payment services. Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 2122142).

    AER shows what the interest rate would be if interest was paid and compounded once each year. It helps you compare the interest rates on different savings products.

    Gross is the interest rate without any tax removed. Interest is paid gross. You are responsible for paying any tax due on interest that exceeds your Personal Savings Allowance to HM Revenue & Customs.

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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