Managing Your Money 

How do NS&I savings certificates interact with Isas?

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

RPII5 per cent4 per cent3 per cent2 per cent1 per cent
Basic rate (20 per cent) taxpayer6.88%5.63%4.38%3.13%1.88%
Higher rate (40 per cent) taxpayer9.16%7.50%5.83%4.16%2.50%
Top rate (50 per cent) taxpayer11%9%7%5%3%

Best Cash Isas for Transfer

ProductAERNotice/TermMinimum investment
Birmingham Midshires 5 Year Fixed Rate ISA5.00% fixed rate5 Year bond£500
Northern Rock Fixed Rate Cash ISA Issue 1614.50% fixed rate15.04.16£500
Halifax Fixed Rate ISA Saver4.40% Fixed rate4 Year Bond£500
Nationwide BS e-ISA3.10% variable rateNone£1
Halifax ISA Direct Reward3.00% variable rateNone£1

Source: Moneyfacts (15/05/2011)

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