NS&I pulls its index-linked savings certificate

Category: Savings
Date: 7/19/2010

A difficult year for savers has been made harder with the news that the Government backed savings institution has pulled its account linked to inflation.

Index-linked savings certificates from NS&I are being withdrawn for new borrowers after a combination of high inflation, low interest rates and economic uncertainty saw the deposits soar.

The bonds are currently held by around 585,000 customers, typically offering the rate of Retail Prices Index (RPI) plus 1%.

With RPI currently running at 5%, the certificates offered savers a high rate of tax free interest and the peace of mind offered by a Government backed institute.

However, such was the popularity of the accounts that NS&I has been forced to pull them as it was close to exceeding targets set by the Government, although exiting clients will not be affected.

These have been set in place to ensure that NS&I does not dominate the savings market in the UK.

This year, NS&I has been set the target of balancing the amount of funds that entered and left the institution.

"The volume of sales over the past few months is such that our forecasts show that we are at risk of exceeding the top end of our range, so we needed to take actions to reduce sales," commented Jane Platt, chief executive of NS&I.

Applications made by post that are received today will be honoured, but those received from tomorrow will be returned to customers.

As part of the changes, the interest paid on Direct Saver and Income Bonds has been cut by 0.25%.

The best rate now available to savers looking to lock their money in for a concerted period of time is 4.75% as offered by ICICI Bank UK.

Those looking for a shorter term can receive 3.10% interest on their funds with the same bank's one year bond.

Find the best savings rates for you - Compare savings accounts