By ADRIAN LOWCOCK 23/07/2010
This week the National Savings and Investments has withdrawn the current issues of Saving Certificates and Index Linked Savings Certificates.
These products were proving to be particularly attractive to savers because the paid interest linked to inflation plus 1% and the interest earned was tax free. Inflation is measured using Retail Price Index (RPI), currently at 5% (June 2010) and therefore higher rate tax payers were able to earn 10% on the account (5% + 1% plus 4% tax relief).
The announcement follows the Governments plans to move to Consumer Price Index (CPI) as a measure of means tested benefits such as public service pensions. RPI is usually higher because of the inclusion of mortgage interest payments and council tax which are not included in the CPI calculation. Because interest rates are currently so low, mortgage interest payments are only likely to go up which would cause RPI to rise faster than CPI.
Existing investors in the National Saving & Investments products will not be affected by the change and indeed, will benefit from any rises in RPI and should look to retain these. Likewise existing investors are able to rollover their investments into the same issue they currently hold at the same terms, making the rollover option attractive. However, it is important to remember that the rates paid today are based on historic figures and the RPI could fall bringing down the interest rate savers get on such products.
For those savers looking where to put their cash, the universe got a lot smaller, and our recommendation is to shop around as rates continue to change each week. You can use our website to check different income rates.