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Monday, 1 May 2017

CUTS IN MAY

"Dear Paul, I was so disappointed about the National Savings bond. I had been looking forward to investing my money at more than 2%. But I am told that you have to be online to do it and I am not. Not all of us are up to using a computer. Is this policy likely to change?"

Joan’s letter arrived, of course, by post. And she was not the only one to contact me making a similar complaint.

The table topping National Savings & Investments bond Joan was looking forward to pays 2.2% a year for a fixed term of three years. The closest to that over three years is 1.91% from Oak North bank, but that is also only available online. Joan will have to put up with 1.9% a year for a three year bond which she can open and manage by post – that one from The Access Bank. Because NS&I’s policy is not going to change. 

Another disappointment with the NS&I Investment Guaranteed Growth Bond – to give it its full name – is that you can only put a maximum of £3000 into it. After three years that will return a total of £3202. Although the rate is table topping the amount you can salt away and the amount it will actually earn is quite small for major savers. There is no danger of websites crashing as cash rich pensioners rush to buy the new bond, as they did when the 65+ Guaranteed Growth Bond paying 4% over three years was launched a couple of years ago. NS&I has no sales figures for the new bond which went on sale on 11 April. But it has promised that it will stay on sale for a full twelve months – up to 10 April 2018.

If the bond is cashed in before the three years are up there is a penalty of 90 days interest. If you cash it in early that can mean you get back less than you put in. The interest, although paid at the end, is credited to the account annually. That means it begins to earn interest too. But it also means there will be a taxable interest payment for the small minority who pay tax on their savings income. It will have to be declared on self-assessment forms. NS&I will send an annual statement with the interest shown – online of course.

The table topping rate on the new Bond is in sharp contrast to the other NS&I products. Rates are cut from 1 May 2017 sending them tumbling out of the best buy lists. The Direct ISA rate falls from 1% to 0.75% as does the interest on the Income Bond. The Direct Saver falls from 0.8% to 0.7%. Only Children’s Bonds are exempt from the scissors – remaining at 2%. 

The interest paid on Premium Bonds will fall from 1.25% to 1.15%. That interest forms the prize fund which is around £5m less in May than it was in April. However, because the prize structure is being changed far more £25 prizes will be paid. In May there were over 100,000 more £25 prizes than were paid out in February. That means the chances of winning one of those will actually go up - see my Premium Investment blog

Some people who had index-linked bonds in the past continue to enjoy tax free interest linked to the RPI, currently 3.1%, which must be the best value deal at the moment. And of course the over 65s with the three year fixed rate bond from 2015 are still being paid 4% taxable, in its last year.

NS&I is disappointing for its current rates for most. But historically it is still offering good deals to old customers.

Updated from my Money Box Newsletter 29 April 2017. 

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1 May 2017