National Savings & Investments (NS&I) has introduced limits on its offerings for wealthier savers.
In mid-June NS&I announced a revision to the terms of its popular Guaranteed Growth and Guaranteed Income Bonds. Whilst the actual interest rates were left unchanged, the maximum investment per person, per issue, was cut by 99%, down from £1 million to £10,000.
NS&I ostensibly exists to help small savers, but it has raised investment limits in recent years – for example to £50,000 on Premiums Bonds – to meet the funding levels set by the government.
In the past NS&I has also emphasised tax-free savings certificates, which were of most appeal to top rate taxpayers.
Fortunately for existing investors, their former investment limits will continue to apply if they reinvest.
However, the dramatic reduction means that NS&I will no longer offer an easy solution for anyone seeking fixed rates on large sums of capital without having to worry about the £85,000 FSCS deposit protection ceiling.
National Savings and Investments has long been something of an oddity in the world of government finance. For example:
As a means of raising money for the Treasury, it makes little sense. NS&I collects small sums from retail investors, usually for terms of no more than five years whereas in contrast, the Debt Management Office (DMO) is well practiced at raising billions for the government from institutional investors, some of it borrowed for terms of over 50 years, and pays lower interest rates for its gilts.
NS&I has a ‘value-for-money target’ for the cost of its capital raising, but the Treasury is able to override this with the classic example of this being 65+ bond promising 4% return, issued shortly before the 2015 election.
Ryan Marshall, Independent Financial Adviser at Pembroke Financial Services of Shoreham comments “It could be argued NS&I is right to discourage large fixed terms deposits that, even before tax, pay less than the going rate of inflation (2.4% CPI, 3.3% RPI in May). There are plenty of alternatives available, many of which offer a higher income.”
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