Savers in Britain have at last something to cheer about. The government backed National Savings and Investments (NS&I) has re-launched its hugely popular index linked bond scheme.
The index-linked savings certificates were withdrawn in July 2010 since government was incurring heavy interest expenses due to heavy demand. However, their return to the markets was approved by Chancellor George Osborne.
The income from index-linked bonds is tax free and the interest rate is calculated by adding 0.5% to the Retail Price Index (RPI). However, traditionally NS&I bonds have typically paid 1% over the RPI.
The annualized interest rate is calculated by adding the margin (0.5%) to the change in RPI over the year. Hence, although currently RPI is running at 5.3%, actual payout will be around 5.8% on annualized basis for a five years term.
NS&I presently allows savings between $100 and $15,000. The certificates are fully guaranteed by the UK government and carry no default risk.
NS&I have also launched its 2.25% fixed interest Savings Certificate. Analysts believe that NS&I products should be part of the investment portfolio of every individual, especially the high income groups.
“Our aim is to keep Savings Certificates on sale for a sustained period of time and to enable as many savers as possible who wish to invest to do so. With this in mind we will be offering a five-year term, only available direct from NS&I”, said chief executive of NS&I Jane Platt.
However, experts advice potential savers to buy the certificates as soon as possible since demand tends to exceed supply. Also the government sets target for the year for NS&I to take in maximum savings from the market without creating liquidity crisis and current year’s target is £14 billion of saver’s money.