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National Savings rate cuts

National Savings is cutting returns on certain Savings Certificates. Read on to find out if your savings are affected and what you can do to make your cash savings work harder for you.

Lee Dooley Lee Dooley
13 November 2013

The media spotlight has been on National Savings & Investments (NS&I) again this week because of the paltry returns its loyal cash savers are receiving. This time it is the overhauling by NS&I of the method it uses to calculate returns on a number of Savings Certificates that has hit the headlines. These changes will have an impact on certain Savings Certificates sold between 1916 and 1996 and will affect more than 900,000 savers.

Which Savings Certificates are affected?

  • War Savings Certificates issued between 1916 and 1936. Rates will drop to 0.009%.
  • Index-linked Savings Certificates (Issues 3 and 4), which were available between 1975 and 1990. Savers previously received returns in line with the Retail Prices Index (RPI) plus a 0.5% bonus. NS&I have now scrapped the bonus but are offering savers the option of transferring to current Savings Certificates which offer 0.05% on top of RPI rises.
  • Fixed Interest Savings Certificates (Issues 7-43), which were available between 1940 and 1996. Returns will now be calculated in a different way although the 0.09% received by savers will not change.

Pressure on cash savers

This latest news is yet another reminder of the pressure that cash savers currently face and once again highlights that cash accumulated in most accounts is likely to fall in value in real terms over the next few years. This is because the base rate is stuck at an all-time low of 0.5% and also because banks and building societies have little incentive to offer appealing interest rates in a bid to attract cash savings because they have access to cheap money via the Bank of England’s Funding for Lending Scheme. When you factor in inflation, which, at close to 3%, is currently higher than most rates paid out to cash savers, the impact on cash savings is clear.

What should you do with your cash?

While it is always important to hold a proportion of savings in cash to act as a safety net, if you want your savings to work harder for you or you need to generate an income, it is likely you will need to look further afield than cash. As a general rule of thumb, we suggest clients hold around six to 12 months of annual expenditure in cash, with the rest being invested into other assets such as equities and bonds that have the potential to provide higher returns over the medium to longer term.

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