There has been much criticism in recent weeks of National Savings and Investments’ decision to remove its popular inflation beating certificates which provided savers with a real return given the certificates’ link to the retail prices index. Indeed the decision has even been described as ‘another door slammed in the face of savers’. Ouch.
However these criticisms are unfair and the Chief Executive of National Savings and Investment, Jane Platt, certainly did not deserve the mauling she got on BBC 5 Live a couple of weeks ago. Why should National Savings and Investments provide such products if it is not in its, or the nation’s, interest, to do so?
If we strip this product back to the very basics it is a savings account with a variable interest rate linked to inflation. No high street savings providers provide such a good and attractive product and indeed very few have any inflation proofing element at all to their myriad assortment of savings options. In many ways National Savings and Investments was running an uneconomical product and over rewarding savers with greater interest than competitive forces required.
Every pound of these ‘super returns’ was being funded by the UK tax payer. The UK tax payer of course has more important things to spend its money on at the current time than over rewarding savers for deposits it just does not need.
This may sound surprising to some but the decision seems to be heavily influenced by two key facts.
Firstly the UK Government is confident that it can raise the funding it needs at a lower cost via the issue of Gilts. The growing strength of the UK economy, Sterling and the Gilt market over recent weeks has improved the Treasury’s confidence in funding itself especially as 10 year Gilt yields have fallen to below 3.2% in previous weeks. With inflation expected to remain high, until such time as Gilt yields move markedly upwards, it’s the cheaper
solution.
The second reason why these products have been withdrawn is that National Savings and
Investments have raised all the money they need to this year. Each year they are given a target by the Treasury of how much they need to raise from savers and this allows them to design investment products of a suitable level of attractiveness to draw in these savings. It is highly likely that this year’s target was set some time ago and if the system had the flexibility to think again today the capacity may well have been increased. But it wasn’t.
National Savings and Investments is not there to provide ultra attractive products for the public. It is there to raise money from the UK public on behalf of the Treasury to the level that the Treasury believes it needs.
Finally one thing that has been overlooked by many is that investors with maturing index linked saving certificates will be allowed to roll over their deposits in to new issues of these certificates.
Those who have been prudent enough to get their finances in shape will thus not be disadvantaged while the more tardy amongst us have now lost out and cannot access the guarantee of a real return. When National Savings and Investments reopens, probably, these products next year expect a flood of people not wishing to get locked out for a second time!
Submitted by: Jason Britton
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