Investing For Income: Safe savings

National Savings offer attractive saving deals.

THE CHANCES of any UK savings institution going bankrupt must be fairly remote. But, according to a recent survey by National Savings, absolute security with low-risk is the main criterion for savers when choosing a home for their money.

Interest rates on some of its products may be less than competitive, but when it comes to security of capital, National Savings wins hands down. All its products are backed by the Government.

"Some people have a deep distrust of all commercial investment providers," says Peter Smith of independent financial advisers, Hill Martin. "With National Savings, there is no risk... if the Government's bust, then we're all bust."

National Savings offers two products which can provide a monthly income: Income Bonds and Pensioners Guaranteed Income Bonds. These products do have a place in an income portfolio, and not just because of the Government guarantee, advisers say.

Though taxable, income on both types of bond is paid gross, which makes life simpler for non-taxpayers. Most standard savings accounts and deposits have basic rate tax deducted at source unless the account holder completes an Inland Revenue form to state that they are non-taxpayers.

Income bonds pay monthly interest at a variable rate - currently 7.25 per cent up to pounds 25,000, and 7.5 percent above that level, although the rate is due to drop to 7 per cent and 7.25 per cent later this month. The minimum investment is pounds 2,000 and the maximum holding is pounds 250,000.

The rate is competitive, but there may be other savings vehicles which pay more and offer better access to funds. "The rates offered by National Savings have to be looked at closely compared with other deposit providers," such as the supermarkets, says Ian Stevenson of Winsec Financial Services, a firm of independent financial advisers.

On balances of over pounds 1,000, instant access accounts at both Cheltenham & Gloucester, and Safeway, pay 7.5 per cent gross, according to financial data provider Moneyfacts.

Pensioners Guaranteed Income Bonds are available to anyone aged 60 or over. The current sixth series pays 5 per cent for the five-year term. The bonds have a minimum investment of pounds 500 and a maximum of pounds 50,000 per series. If they are cashed in during the five-year term, then there is some loss of interest - either the holder gives 60 days notice and no interest is paid during that time or no notice and the holder pays a penalty equal to 90 days interest.

The rate on Pensioners Guaranteed Income Bonds is low compared with some variable rate savings accounts on the market, but Carys Jones, of National Savings, points out that it is fixed for five years.

Bank base rates came down by a quarter of a percentage point last month, and a further 0.5 per cent this past week. "So it's quite an important time for people to take stock and tie into a rate they'd be getting for five years," she says.

National Savings, 0845 300 5959; Winsec Financial Services, 01603 762388; Hill Martin, 0171-233 2777