Indexed-linked Savings Certificates Provide Tax Free Returns For Your Investments And A Good Hedge Against Inflation

Index-linked savings certificates are designed to protect your savings from the negative impact of inflation. Inflation has the effect of eating away your savings and reducing the buying power of money.

Although inflation will benefit borrowers, it is cruel to pensioners, people on fixed income who rely on their savings, other savers and shoppers. In the UK, it hit a 19 year high of 5.3% (based on RPI) in April 2010 and could go even higher.

The average easy-access savings account pays under 0.2% before basic rate tax. To keep up with inflation, basic rate tax payers' savings ought to be earning around 6.6%, higher rate tax payers should be earning around 8.8% and 50% tax payers should be earning around a hefty 10.6%.

The good news for savers is that they can consider switching their savings to the National Savings and Investments' (NS&I) indexed-linked savings certificates.

Their features include:

• track the Retail Price Index (RPI) plus fixed interest. This means that the value of your savings will stay ahead of inflation, as measured by RPI.


• are free of UK Income Tax and Capital Gains Tax. This means tax free returns for your savings. They are a tax efficient savings vehicle similar to cash ISAs.


• are lump sum investments designed to be held for the full period of three or five years


• can be cashed in early, but no index-linking or interest will be paid if cashed in within the first year.

They may be right for you if you:

• want your savings to grow ahead of inflation as measured by the RPI


• can leave your money invested for the whole investment term (3 years or 5 years)


• want to make the most of tax free returns on your savings


• have £100 or more to invest up to a maximum of £15,000 in each new issue on sale at the time

They may NOT be right for you if you:

• might need access to your money during the investment term. No index-linking or interest is paid if you cash in within the first year.


• want a regular income from your savings.


• are a non-tax-payer.

Who can invest?

Anyone aged seven or over. You can invest by yourself or jointly with someone else. You can invest in trust for someone else or buy savings certificates on behalf of children under seven. The child then becomes responsible for them on their seventh birthday. For an application form call NS&I for free on 0500 007 007.

What happens at the end of the term?

Shortly before it reaches the end of its term, the NS&I will write to let you know of your options.

You can then choose to:

• continue holding your investment for another term of the same length


• reinvest in an index-linked savings certificate for a different term


• reinvest in a Fixed Interest Savings Certificate


• cash in your investment

As inflation reduces the purchasing power of your savings, you need a tax efficient savings vehicle such an index-linked savings certificate to ensure that your savings grow ahead of inflation.

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