Hardly two weeks after the government announced it plans to use the Consumer Price Index (CPI) to measure means-tested benefits such as public service pensions rather than the Retail Price Index (RPI), another government-backed organisation has been the bearer of bad news for savers. National Savings & Investments (NS&I) announced this week that it has withdrawn the current issues of its saving certificates, including the index-linked products, which were linked to RPI from general sale.
NS&I also announced that it is reducing the interest rates paid on its Direct Saver and Income Bonds by 0.25 per cent with immediate effect.
Jane Platt, chief executive of the NS&I, explained the decision as follows: "NS&I has a unique position at the heart of the UK savings sector and we continue to follow a policy of acting transparently and balancing the interests of our savers, the taxpayer and the stability of the wider financial services market. While doing this we are tasked with meeting the government financing objective - called our Net Financing target - which is set for us each year by HM Treasury. This year we have agreed to broadly balance the funds coming into NS&I with the funds leaving us - in other words our Net Financing target is zero within a range of £2.0bn either side of this.
"We've seen significant amounts of money invested into these products over recent months and so we've taken the difficult decision to withdraw savings certificates from general sale and reduce the interest rates paid on our Direct Saver and Income Bonds. This is designed to ensure that we do not exceed the upper end of our Net Financing target range."
Given the paltry savings rates available, it is hardly surprising that savers rushed to NS&I products in their hordes. NS&I's index-linked certificates gave investors the guarantee of maintaining the spending power of their savings - with the added benefit of 100 per cent protection for their cash.
If you were wise enough to invest in a NS&I savings product - hold on to these. Existing investors will not be affected by the change and on maturity, you can continue to roll over your investment into the same Issue you currently hold. You can also reinvest into any of the savings certificate terms and issues - either the three or five-year Issue of Index-linked Savings Certificates or the two or five-year Issue of Fixed Interest Savings Certificates - regardless of which savings certificate you currently hold.
All indications are that the RPI will increase (which could explain why the government is shying way from RPI-based valuations) and these products will become very attractive investments as they will benefit from a higher rate.
Those who have invested in other NS&I products will unfortunately not be able to reinvest their money into savings certificates.
Email: maike.currie@ft.com
