An Investors Chronicle reader has emailed us to say that he is confused about the NS&I savings certificates and how they interact with your annual individual savings account (Isa) allowance.
So, for clarification, NS&I savings certificates don't count towards your total £10,680 tax-free Isa allowance for 2011-12. Nor do they count towards the £5,340 of this that you can hold in cash Isas.
Holding other tax-free savings or investments such as pensions or Isas doesn't affect your Index-linked Savings Certificates - you can still invest up to £15,000 in each Issue.
But if you have a choice between investing your money in a cash Isa and the certificates, then certificates look better (see tables below). Even if you are a basic rate taxpayer, RPI inflation would have to drop to 2 per cent before today's cash Isa rates start to look a better deal. For higher rate taxpayers, the argument in favour of certificates looks even better.
Equivalent gross annual return that you need to make the equivalent of NS&I savings certificates if RPI inflation (RPII) is at various levels
| RPII | 5 per cent | 4 per cent | 3 per cent | 2 per cent | 1 per cent |
|---|---|---|---|---|---|
| Basic rate (20 per cent) taxpayer | 6.88% | 5.63% | 4.38% | 3.13% | 1.88% |
| Higher rate (40 per cent) taxpayer | 9.16% | 7.50% | 5.83% | 4.16% | 2.50% |
| Top rate (50 per cent) taxpayer | 11% | 9% | 7% | 5% | 3% |
Best Cash Isas for Transfer
| Product | AER | Notice/Term | Minimum investment |
|---|---|---|---|
| Birmingham Midshires 5 Year Fixed Rate ISA | 5.00% fixed rate | 5 Year bond | £500 |
| Northern Rock Fixed Rate Cash ISA Issue 161 | 4.50% fixed rate | 15.04.16 | £500 |
| Halifax Fixed Rate ISA Saver | 4.40% Fixed rate | 4 Year Bond | £500 |
| Nationwide BS e-ISA | 3.10% variable rate | None | £1 |
| Halifax ISA Direct Reward | 3.00% variable rate | None | £1 |
Source: Moneyfacts (15/05/2011)
