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
|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)