National Savings Indexed Linked Certificates Review.

The Government's savings body had taken its Index-linked Savings Certificates off the market in July 2010 because high demand was costing too much in interest payouts. The return of National Savings & Investments index linked savings certificates bonds was first flagged up in the Budget back in March 2011 and NS&I predicts inflows of around £14 billion. The five-year bond will pay an interest rate that will stay 0.5% ahead of the retail prices index (RPI), and the savings income is tax-free. In the first year you get 0.25% of original purchase price above inflation. Year2 You get 0.35% of year one value (after interest was added), Year 3 you will get 0.40% of year 2 value (after interest was added), year 4 you will get 0.65% of year 3 value (after interest was added) and in year 5 you will get 0.86% of year 4 value (after interest was added). It means if you hold the investment for the full five years, you will get an average fixed interest return of 0.5% a year on top of inflation. On the date interest is added at the end of each year, National Savings & Investments takes the RPI rate from two months previously. For example, if you opened the bond on 01 June 2011, you get interest added on 01 June 2012, but the RPI rate used is from April 2012. The five-year bondsallow savers to invest from £100 up to £15,000 and pay RPI plus 0.5 percentage points,  making a current return of 5.8% based on the current inflation figure of 5.3% in march. NS&I savers can withdraw their money during the five-year investment period, and only in year one is nothing at all added on to cover inflation which has taken place since the account opened. You can actually access your money any time after twelve months with the five-year certificate without losing any interest 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. Because the certificates are tax free the gross returns are even higher and below you can see what they would be for various taxpayers.

RPI	5%	4%	3%	2%
20% Taxpayer	6.88%	5.63%	4.38%	3.13%
40% Taxpayer	9.16%	7.50%	5.83%	4.16%
50% Taxpayer	11%	9.00%	7.00%	5.00%

The above is the equivalent gross rates the certificates would be offering if the return was not tax free.