National Savings
In the last few days and weeks we’ve seen Bradford and Bingley nationalised to join Northern Rock, HBOS rescued by a shotgun wedding to LloydsTSB, and that’s just on this side of the pond. Lehmans, Wachovia, Washington Mutual … the list goes on. Which does raise the question – if the banks are going under where IS your money safe?
The nightmare vision in the City and on Wall Street is of people queueing up to withdraw their cash. It’s a nightmare because there isn’t enough to go round if everybody went to the cashline at once. But then what? Stick it in under the pillow? Joking apart, that’s a rotten idea for several reasons. Firstly there’s inflation. 4% and rising. Withdraw your £1000 from the bank and keep it in cash and, within a year, it’s worth just £960. The year after it’s down to £920. Second, it’s risky … get burgled and you’ll find it very hard to reclaim the cash under your household insurance.
The fact is, to protect your savings you need to be earning interest. And to earn interest you have to stick the cash in a bank of some sort. This week we look at Britain’s SAFEST bank, National Savings and Investments. Underwritten by the Government and with a cast iron guarantee. ‘There is no way you could lose your money,’ according to a spokesperson this week. Clear enough?
They don’t get any more solid and boring than NS&I, but solid and boring is just the ticket in these turbulent times. Check out the front page of the website and you’ll see the legend ’100% security for your money‘. Sounds just the ticket and, unsurprisingly, savers have been piling into this safe haven over the past few weeks. Look at the website and you’ll see a checklist of what National Savings can offer, and they have plenty of products. There are instant savings accounts, children’s bonus bonds, fixed interest savings certificates and guaranteed income bonds. So whether you’re saving for yourself or your kids, locking away money for the long term or need to be able to withdraw at any time … there’s something for you.
What you WON’T get of course is a top rate of interest. There’s a solid principle in saving that the riskier the investment the better the return … And we’ve all seen where THAT has got the western financial system in the last year or so. The interest rates on National Savings start at just 1.85 per cent gross for the Instant Savings account, on deposits of £100 or more. You get a cash card, so you can make withdrawals at cash machines. But for goodness sake make sure they’re free cash machines, not the rip-off dispensers that you find in a lot of convenience stores.
You can also use the card to pay in cash at post offices. Rates do rise with bigger deposits, though even deposits of £50,000 or more top out at 4.4%. But you’re buying security not price.Rates are better on the National Savings Direct ISA, paying 5.3% and of course it’s tax free. You’ll need £1000 to open an account. Moving up, a good hedge against inflation is the National Savings Index Linked Savings Certificate. The product guarantees to rise in line with inflation and gives tax free interest – very good for higher rate taxpayers.
You do have to lock your cash up for either three or five years, but it currently delivers 9.5% for higher rate tax payers. You can invest as little as £100 and up to £15,000 for each issue of these certificates. What you have to realise is that these long term products price in future interest rates – so the rate you get now anticipates the interest rate a year or two down the line. It’s a fair bet that, even with inflation on the up, interest rates are going to come down. With the US and Europe heading into recession, the central banks simply HAVE to cut rates to give the economy a nudge. So children’s bonus bonds that were giving 5.1% a year ago are now down at 3.7%. Again though … it’s all about safety. But even as the markets go into meltdown you HAVE to look to growth and the future.
Related: National Savings official site
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