After a flood of applications by savers desperate to safeguard their cash from inflation into National
Savings & Investments (NS&I) inflation-linked savings certificates which threatened to overwhelm the government bank's targets, NS&I has closed this part of its savings business to new customers.
NS&I has announced that its Savings Certificates - both fixed-interest savings certificates and index-linked savings certificates, also known as inflation-beating savings - have been withdrawn from general sale.
Existing savers in these products are unaffected. The certificates will run until maturity at which time the proceeds can be rolled over into the same issue (i.e. the same rate) or one of the other certificate issues.
NS&I is also reducing the interest rates paid on its Direct Saver and Income Bonds by 0.25 of a percentage point with immediate effect. Sales volumes in recent months across all three products have far exceeded those either anticipated or required by NS&I.
In the first quarter of this year, NS&I saw a near-record £5.4 billion inflow of money. The bonds are held by 580,000 customers with £17 billion deposited, and typically pay a rate of inflation as measured by the Retail Prices Index (RPI) plus one per cent.
Rival banks and building societies have lobbied intensively to make sure the rates offered by NS&I and other government-owned banks are not so competitive that they restrict the flow of funds into other banks.
“We are tasked with meeting the government financing objective – called our Net Financing target – which is set for us each year by HM Treasury,” said Jane Platt, NS&I's chief executive.
“We’ve seen significant amounts of money invested into these products over recent months and so we’ve taken the difficult decision to withdraw
Savings Certificates from general sale and reduce the interest rates paid on our Direct Saver and Income Bonds.
“This is designed to ensure that we do not exceed the upper end of our Net Financing target range.
“The volume of sales over the past few months is such that our forecasts show we were at risk of exceeding the top end of the range, so we needed to take action to reduce sales.”
Andrew Hagger, of moneynet.co.uk, said index-linked certificates had offered far better rates than savings accounts in recent months and that NS&I was understandably worried about "balancing the book".
"It stumps the poor old saver once again, with another door slamming shut in their faces leaving them questioning where they can go to try and ensure their capital is not eroded by inflation," said Hagger.
Justin Modray of Candid Money said the withdrawal is a major blow to savers as there aren’t any comparable alternatives to Index-Linked Certificates.
“Cash Individual
Savings Accounts [ISAs] are tax-free, so fixed rate cash ISAs are similar to Fixed Interest Certificates, but there are currently no inflation-linked savings accounts,” said Modray.
“So for the time being I think you’ll just have to shop around for the best variable or fixed rate savings account you can find, using your cash ISA allowance if available.”
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