National Savings: products for all

National Savings, the government-run savings institution, is very often overlooked by serious investors. This can be a mistake as the range of products on offer means there is likely to be something for almost everyone. Taxpayers in particular should be attracted by the range of National Savings investments, which are tax-free.

Comparison with other savings products can be difficult. For a start, there are no similar products on the market to Premium Bonds. These give the holders a chance to win pounds 1m, or one of hundreds of thousands of other prizes, from pounds 50 to pounds 100,000, with no risk to their capital. Every bond has a chance of a serious win and the prize money handed out is reckoned to be equivalent to a rate of return of just over 4 per cent. But if that sounds good, then the drawback is that there is no guarantee of ever getting a win, which would mean your savings lost spending power over time.

Many savers will prefer to keep their cash in accounts that offer lower, but guaranteed returns. Here too National Savings has other unique products, in particular Index-linked Savings Certificates.

The index-linking bit means the value of your savings follows the changes in the retail prices index, the RPI, which is basically the index of the price of a basket of standard goods, such as bread and milk, and services such as mortgages. Linking savings to the RPI means they are inflation proofed. The certificates' interest rate has recently been improved so the 11th Index-linked Issue Savings Certificate, has an interest rate of inflation plus 2.75 per cent. The certificates are tax-free but must be held for five years.

Five years is also the length of time that a number of other National Savings products have to be held, all of which offer fixed interest rates. Children's Bonds Issue H offer 6.75 per cent tax-free but are available to the under-16s only. At the other end of the age spectrum, the 3rd Series Pensioners Guaranteed Income Bond pays a taxable interest rate of 7 per cent but is only available to the over-60s. The basic National Savings Certificates, currently in their 4th issue, pay a tax-free 5.35 per cent while Series J of Capital Bonds pays a taxable 6.65 per cent.

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