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N&SI bonds relaunch to help fight inflation

Chancellor pledges £2bn to aid stricken savers
The NS&I logo

Inflation proof savings bonds look set to be reintroduced

With inflation reaching 5.5% in February, Chancellor George Osborne has thrown savers a lifeline by annoucing the reintroduction of National Savings and Investments (NS&I) inflation-linked bonds in the 2011 Budget.

In the Osborne’s Budget Document, it was revealed that the Chancellor wants to raise £2bn for the government bank through NS&I bonds.

Why did NS&I close these inflation-linked bonds?

When inflation began to surge last year, N&SI was besieged with subscriptions to its inflation linked bonds, as savers looked for an inflation shelter for their cash. So in September 2010, when RPI was at 4.6%, NS&I closed subscriptions to its inflation linked bonds

Since then, only a few savings products have been launched to help savers beat inflation, of varying quality. With inflation at its current level, a basic rate taxpayer needs a return of 6.87% before tax and a higher rate taxpayer needs to earn 9.17% on their cash, just to keep pace with the Retail Prices Index (RPI) .

Now, with RPI up to 5.5% – its highest level since 1991 – and no changes to interest rates from the Bank of England (which might help to combat inflation), NS&I’s bonds are again open for business.

What do the NS&I inflation-linked bonds offer savers?

You will get a return linked to RPI for a fixed period. Your savings are fully backed by the government and returns are paid free of tax.

Previous bonds paid 1% over inflation – it is not known whether the same terms will be offered to new savers.

In a statement yesterday, NS&I said: ‘Subject to market conditions, NS&I expect to be bringing savings certificates back on general sale in 2011/12. NS&I can also confirm that a new issue of index-linked savings certificates will retain index-linking against the RPI.’

Which? savings expert Rebecca Fearnley says: ‘This is good news for savers. With so many savings accounts struggling to keep up with inflation, the NS&I index-linked bonds offer a welcome guaranteed, tax-free return.’

Which? live coverage of the 2011 Budget

Did you miss Which? Money’s live coverage of George Osborne’s 2011 Budget? You can rewatch all our Budget commentary and analysis by replaying the Which? Budget 2011 Live Blog. 

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