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Index-Linked Savings Certificates

National Savings and Investments announced yesterday that a new issue of Index-Linked Savings Certificates with a five year term is now available. We believe that the certificates offer a good option to hold alongside long term cash.

The certificates pay an interest rate linked to inflation plus 0.5% a year. The interest payable is tax free. The inflation element is linked to the RPI (Retail Prices Index), which includes mortgage payments and so  tends to be a little higher than the CPI (Consumer Price Index), which is the measure used and quoted more often. The RPI is affected by many things and it is difficult to accurately predict the rate of inflation, although the Bank of England has published it’s aims.

The annual RPI was 5.4% higher in March 2011 than in March 2010. The current prediction from the Bank of England is that this will increase further this year and then start to reduce back towards ‘normal’ levels. Even at a more average rate of 3% the interest paid could still be higher for Certificate holders than in many bank accounts.

NS&I provide an example showing the interest that applied to a certificate purchased in March 2005 with an ‘RPI plus 0.25%’ rate. The total return after 5 years on a £10,000 investment was £1,673.69, which is about the same as if you invested in a simple bank account with a fixed interest rate of 3.15% for the same term. During this time the annual RPI rate was an average of 2.91%. The RPI is much higher than this at the moment and we believe the average will be higher than 3% over the next five years, making a very good cash return for investors.

Each individual is allowed to invest up to £15,000 in this issue. The certificates are locked-in for five years (there is no three year version this time) and if withdrawn early you only receive the 0.5% basic interest.

More information on the certificates is available from

If you want to invest in the Certificates, it is best to invest online at or by posting your application. You can invest over the phone (0500 500 000), but due to the expected high demand it may be difficult to get through. The announcement claims that the certificates will be on sale for a ‘sustained period’ but we are aware that there will be a limit to how much is sold, so early action may be sensible.

We would be grateful if you could let us know if you do invest so that we can keep our records up to date.

Please contact your usual adviser at Wise Investment if you have any questions at all.

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