If you want to know exactly how much interest your savings will earn, you should consider the Fixed Interest Savings Certificates where the rate of interest (currently 4.8 per cent) is fixed for the five-year term. For a basic-rate taxpayer this is equivalent to six per cent gross on a normal savings account, while it is eight per cent to a higher-rate taxpayer.
If you are worried about the effects of inflation on your savings, then the Index-linked Savings Certificates may be more appropriate, as your savings earn inflation plus 2.25 per cent a year. At present, inflation is 3.3 per cent, so the annual interest is 5.55 per cent. This is equivalent to 6.93 per cent gross for lower-rate taxpayers and 9.25 per cent gross to higher-rate taxpayer.
The other tax-free savings scheme offered by National Savings is Children's Bonus Bonds, which currently pay six per cent a year if they are kept for five years. It may well be better to put money in a high-paying savings account.
National Savings Certificates 0191-386 4900; National Savings Children's Bonus Bonds 0141-636 2602-4
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