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NS&I savings certificates now pay 5.6% tax free

Inflation-beating products still on offer to some

The NS&I logo

Check the NS&I website to see if you have won

Despite the fall in the Retail Prices Index (RPI) to 4.6%, the interest paid on Savings Certificates from National Savings and Investments (NS&I) is still beating the return on offer from high street banks and building societies.

On 19 July 2010, NS&I announced that Savings Certificates were no longer available to new customers. However, existing customers with maturing Certificates continue to have the option to reinvest in the most recent issues. With RPI at 4.6%, three-year and five-year certificates currently pay 5.6%, ahead of the fixed-term savings accounts and easy-access savings accounts available from banks.

Savings Certificates pay a fixed rate of interest on top of the rate of inflation (as measured by the Retail Prices Index) to ensure that savings stay ahead of rising prices. On each anniversary, interest and index-linking are added to the Certificate.

Advantages of NS&I savings certificates

  • Free of income tax and capital gains tax
  • Currently paying 5.6% AER. As the Certificates are tax-free, a basic-rate taxpayer would need to earn 7% on a standard savings account to match this return. A higher-rate taxpayer would need to earn over 9% before tax
  • Savings Certificates are guaranteed to beat inflation as they track at 1% above RPI
  • Deposits with NS&I are 100% guaranteed by the government.

Disadvantages of NS&I savings certificates

  • Savings Certificates are closed to new customers – they are only available for people who already have Savings Certificates approaching maturity that they want to roll over
  • The rate changes as RPI goes up or down. If RPI drops to 1%, the rate you’ll earn drops to 2%. If you’re looking for an interest rate that won’t change, you may be better off looking at a Best Rate fixed-term bond or a fixed-term cash Isa.
  • Savings Certificates are designed to be fixed-term deposits – if you cash them in within the first 12 months you get no index-linking at all.

More details on tax-efficient savings

If you’re not eligible to buy NS&I Savings Certificates or would like to explore other options, read our guides and Tax on savings and investments.

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