HomeHow is interest calculated? 
Interest is paid in two parts.
The first part, known as Index Linking, is an amount equal to RPI (Retail Price Index).
The second part is Fixed Interest, which if you hold the Certificates for the full term will average 0.5% AER per annum.
The calculator on the NS&I website allows you to calculate examples of the interest you might receive, there is also an example at the end of this article.
What is RPI?
RPI stands for the Retail Price Index and is measure of the level of prices of goods and services bought by UK households.
The RPI figure is compiled by the ONS (Office for National Statistics) and along with the CPI (Consumer Price Index) is one of the most popular measures if inflation in the UK.
When calculating your interest NS&I use the RPI figure from two months before your interest is due. For example if you are due your annual interest payment in March the January RPI figure, which would be announced in February is used.
Is interest accumulated to my savings?
Yes, it is not paid away to a separate account.
How long do I have to tie my savings up for?
The latest release of the Index Linked Certificates has a term of five years.
Can I get access to my savings?
You can gain access to your savings at anytime; however should you do so within the first year no interest will be paid. Furthermore the 0.5% fixed payment starts at 0.05% in year one, rising to 0.71% in year five. This means if you were to cash in your savings early the Fixed Interest you receive may be less than the 0.5% advertised.
How do I manage my account?
Over the telephone and by post.
How much can I save?
The minimum you can save is £100 and the maximum is £15,000 per person per issue.
How is the interest taxed?
Interest is tax free.
What are the advantages of this account?
- Interest is linked to RPI which means your savings will keep pace with inflation
- The minimum amount you can save is low
- The interest you receive is tax free
- Anyone aged seven or over can take out Index Linked Certificates making them ideal for some children
- Your savings are guaranteed not to fall in value
- The Certificates are designed to be held for the full five year term; however they can be accessed if necessary during that time. If they are cashed in during the first year no interest will be added, if they are cashed in between years one and five interest will be added, however less than if there were held for the full term as the Fixed Interest amount increases during the term to produce an average payment of 0.5% per annum
What are the disadvantages?
- If interest rates were to rise and inflation fall other accounts may provide a better rate of interest
- To get the maximum return possible you will need to keep your money invested for the full five years
- The maximum that can be invested is only £15,000 per person per issue
The Investment Sense Verdict
The return of National Savings Index Linked Certificates will be welcome news to many people, especially savers who are plagued by low interest rates.
Whilst interest rates remain low and inflation relatively high the Index Linked Certificates look like an attractive option for savers.
However, what happens if interest rates rise and inflation falls?
This is where the NS&I Index Linked Certificates win over other inflation linked savings accounts. With other inflation linked accounts you are tied in to the full term, generally five years. NS&I Index Linked Certificates however allow you access to your money. Beware though that if you access your savings within the first year you will get no interest.
The interest on the Index Linked Certificates is also tax free, which means that the return will always be hard for other inflation linked accounts to match.
The downside of course though is that you can only invest £15,000 per issue.
On the whole we give NS&I Index Linked Certificates the thumbs up, it’s just a shame the £15,000 limit is not higher.
Should you wish to discuss this account, or other ways of getting a real, above inflation, return on your savings, speak to one of our team of advisers today. They can be contacted on 0115 933 8433, 0845 078 7774 or by sending an email to info@investmentsense.co.uk.
