How to do some serious bonding

National Savings offer a wide range of schemes at good interest rates and are safe - you are banking with the British Government, which doesn't like to lose voters. But recent falls in interest rates offered by banks, building societies and insurance companies has allowed the Treasury to cut rates on national savings, too.

Capital Bonds - a five-year investment - can be bought with pounds 100 but you can hold up to pounds 250,000 worth. The interest rate on the latest issue (26 January) has been cut to 6.65 per cent, is paid gross but is not tax- free, so if you are a taxpayer, you have to pay tax on it. If you cash the bonds in during the first year, you receive no interest.

The age for Pensioners Bonds has just been cut to 60, which brought in pounds 423m in December alone as the under-65s rushed to buy them. The minimum investment is pounds 500, the maximum pounds 20,000, and the current issue earns a guaranteed 7 per cent paid gross every month; however, if you are subject to tax, so is it.

First option bonds pay a fixed annual interest rate after basic-rate tax has been deducted at source. The current rate, guaranteed for a year, is 6.25 per cent gross for up to pounds 20,000, which means you will receive 5 per cent net when the tax rate on interest drops to 20 per cent in April. You can invest from pounds 1,000 to pounds 250,000 in these.

Income bonds cost pounds 2,000; you can invest up to pounds 250,000. If you have less than pounds 25,000, the interest, paid gross but taxable, is now 6.25 per cent, and 6.5 per cent if you hold more. Rates will vary in line with base rate.

Children's bonus bonds can be bought only by or for under-16s. They are for five years, and reinvestable, paying a guaranteed 6.75 per cent free of all tax.

Basic NS certificates pay 5.35 per cent tax-free and are guaranteed if held for five years. You can start with pounds 100 and go up to pounds 10,000. Index- linked certificates are much the same but pay interest tax-free at 2.5 per cent above the rate of inflation if held for five years.

Investment accounts can be started with pounds 20 and pay 5 per cent gross (taxable) on less than pounds 500, 5.5 per cent on pounds 500-plus, and 5.75 per cent on pounds 25,000 or more, but a month's notice is needed to withdraw. Maximum investment is pounds 100,000 per account. These rates change if the base rate does.

Ordinary accounts start at pounds 10, and go up to pounds 10,000. You have instant access but earn only 1.75 per cent gross on less than pounds 500 and 2.75 gross on sums over that if the account has been going for a calendar year. The first pounds 70 of annual interest is tax-free.

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